New US tariffs on EU would indirectly affect Estonia

No one will benefit from the USA introducing new tariffs as protectionism leads to higher prices, analysts say. If the U.S. imposes tariffs on the European Union, the impact on Estonia's economy will generally be indirect.
U.S. President Donald Trump is threatening to impose tariffs on Mexico, Canada, and China. Mexico postpone them for a month, but Canada's will be introduced this week unless an agreement is found.
Financial markets have already been shaken. The euro's exchange rate fell by 1.3 percent against the dollar due to fears that the U.S. may impose tariffs on the European Union next.
With the enforcement of these tariffs, the first phase of the trade war has begun, said Peeter Koppel, head of investments at Redgate Wealth.
"This implementation is only about one-third of the way through. More tariffs are likely to follow, and fundamentally, we seem to be moving toward a clearly more closed world. The last time things were this centered around protectionist tariffs was probably around 1969. /.../ Essentially, this is an additional tax on consumers, and it disrupts the logic of existing, well-functioning supply chains and trade flows," he explained.
If Trump imposes tariffs on the European Union, Germany's already struggling economy will take the hardest hit. For Estonia, the impact will be felt through its main trading partners.
However, the electronics industry will be directly affected.
"The U.S. is Estonia's sixth-largest export destination, accounting for 5 percent of Estonia's exports. About a third of what we export to the U.S. consists of mobile communication devices, specifically 5G equipment. However, their overall share of total goods exports is only 1.6 percent," said Swedbank's Chief Economist, Tõnu Mertsina.
Koppel said the European Union may impose its own retaliatory tariffs, as Canada is planning to do.
"The importance and influence of the European Union has unfortunately declined significantly since the major financial crisis. So in this case, it is more of a victim than an equal opponent," he said.
In the long run, no one will win the trade war, and global prosperity will decline, said Peeter Luikmel, head of the external economy division at the Bank of Estonia.
"Both the U.S. and Europe are currently experiencing very low unemployment, their populations are aging, and there is a labor shortage. Domestic production must somehow be supplied with labor, which in turn means wage increases. /.../ In the longer term, this results in overall price increases, somewhat less efficient production, and, on the other hand, a clear possibility that average interest rates over the long term will simply have to be slightly higher in the future," he explained.
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Editor: Merili Nael, Helen Wright
Source: Aktuaalne kaamera