A plus for the Estonian economy in the context of the Trump tariffs is that the majority of the country's foreign trade is with European Union member states, who certainly won't be imposing tariffs on each other, economist Raul Eamets writes.

Estonia is a small and open economy, meaning a large share of the goods sold here get produced outside of Estonia, or rely on raw materials imported from abroad. In other words, we here are highly dependent on the global market and its fluctuations.

Foreign trade statistics on Estonia indicate that we are slowly emerging from the economic downturn, with trade with the rest of the world gradually picking up. Looking at foreign trade statistics at the start of the year, both exports and imports had grown in comparison with the same period last year.

A present foreign trade hot topic is Donald Trump's proposed tariffs on EU goods. The US president has pledged to impose tariffs of 25 percent on EU imported goods. In reality, no one knows in what form this pledge will materialize or when the tariffs might be implemented.

Trump's moods can change, not over weeks or even days, but even within hours — as demonstrated in the case of the tariffs on Canada. In the morning the announcement is made that tariffs will come into effect, then a few hours later, the statement is made that they've been postponed again, and so on.

Trump has now imposed 25 percent tariffs on steel and aluminum products, while the latest news says that starting April, all foreign-made cars and car parts will also be subject to 25 percent tariffs.

This will hit American consumers hard, as about half of the new cars purchased in the US are manufactured abroad, while even those assembled in the US use about 60 percent imported parts.

Foreign-made cars will therefore get more expensive.

How will all these tariffs affect Estonia's foreign trade though? The US share of our export partners has declined. In January, the US was Estonia's seventh largest export destination, accounting for 5 percent of total exports.

It is also the case that monthly exports to the US grew over the past year. Compared with the period 2021–2022, when exports reached €150 million per month (nearly €200 million some months), current volumes are nearly a third of that. In January, exports to the US totaled €68 million.

Against the backdrop of Trump's tariff triangle, it should not be overlooked that tariffs have always existed within EU–US trade: Average US tariffs on EU goods are 4 percent, while the EU imposes 3.5 percent tariffs on US-made goods.

However, averages don't state very much — tariffs vary from a few percent to several dozen, depending on the specific product category.

Estonia's largest exporters to the US are manufacturers of machinery and equipment, including those of various mobile devices, 5G tech, as well as companies producing wooden items, wooden furniture, and wooden houses.

Electronics have so far enjoyed zero or very low tariffs. Wood industries and wooden furniture have also faced low tariffs — in around the 2.5–3-percent range. All these sectors will therefore be hit hard if tariffs rise to 25 percent.

In general, all those sectors which have so far enjoyed low tariffs will be affected the most.

Every force has a counterforce, however, and in foreign trade this means that imposing tariffs is always followed by retaliatory tariffs.

The EU has long imposed relatively high tariffs on US agricultural products for instance.

Dairy, meat, and sugar are particularly protected, with tariffs ranging from 10–20 percent; up to 50 on certain types of cheese.

Tariffs also apply to US cars (at 10 percent), as well as clothing and textiles, where they range from 10–12 percent. This list, of course, is non-exhaustive.

Similarly, the US applies relatively high tariffs to certain EU foodstuffs; for example, Roquefort cheese has a 25 percent tariff, some processed meat products 20 percent, and sweet biscuits between 15–20 percent, depending on the item.

There are usually two goals when imposing tariffs: To protect local producers from cheap foreign imports, and to prompt foreign manufacturers to relocate production to the tariff-imposing country.

This, of course, only works if the domestic market is large enough and attractive enough.

The US market is certainly large enough. Several major European corporations have already announced plans to partly relocate production to the US.

Volvo and Volkswagen, for example, have announced plans along those lines, as has the Swedish hygiene product manufacturer Essity.

Similar messages have come from several major South Korean and Taiwanese electronics manufacturers. So, merely threatening tariffs has already helped Trump achieve some of his intended goals.

The initial effect of tariffs is that local consumers suffer, as all imports become more expensive.

A benefit of Estonia's economy is that the majority of our foreign trade is with EU member states, and we certainly won't impose tariffs on each other.

Of course, it's possible that a key component or raw material in an EU-made product is imported from the US, making the final product costlier for our consumers — even if we buy it from Finland or Germany.

To sum up, we can say with a considerable degree of certainty that global free trade, in the form we had hoped to get to see it, is sadly dead, and now we must begin to adapt to a new reality.

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