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Trump's tariffs and their potential effects on Estonia

US President Donald Trump.
US President Donald Trump. Source: AP/Scanpix

"Trade wars are good, and easy to win," so tweeted US President Donald Trump at the beginning of March this year, thus commencing a round of tit-for-tat tariff-imposing between the US and, well, most of its trade partners. But will this affect Estonia and if so, how much?

According to a Swedbank report on the question, the effects are difficult to estimate due to the ongoing nature of the 'trade war', but they are certainly worth consideration.

As an EU nation Estonia, together with the other two Baltic states, is subject to the same retaliatory tariffs that the European Commission and the EU imposed in the wake of Mr. Trump's announcement that tariffs on steel (25%) and aluminium (10%) imports were to be imposed on the EU, Canada and Mexico.

These weren't the first tariffs of the Trump administration – those had already come at the beginning of the year on washing machines and solar panels – but were amongst the most significant to date and angered the wider trading world including China (which imposed similar tariffs on the US when the latter, at the behest of the POTUS; imposed a 25% tariff on US$34 billion worth of Chinese imports).

Currently China and the US are headed for round two of the tussle, with tariffs, also at 25%, on a further US$16 billion in the works and with no end in sight from either side.

Tariffs can have knock-on, rather than direct, effect on Estonia

But back to Estonia and the Baltics. Future US tariffs on the EU are likely to focus on the automotive industry, which obviously endangers larger car producers like Germany in particular, although Estonia's vehicle plus machinery and iron/steel products exports make up as much as 9% of GDP. In any case, again having to act as a single block can even hamper those sectors if tariffs on the US are reduced, as World Trade Organisation (WTO) rules prevent the EU treating the US separately in tariffs, but would have to include all the Asian car manufacturers who would thus see an improved auto competitiveness versus domestic EU manufacturers.

Given Estonia's size, imports and exports together make up 150% of GDP, and the story is much the same for Lithuania and Latvia (150% and 125% respectively), which makes the Baltic States amongst the most open economies on the planet.

They would be particularly vulnerable to the indirect effects of further or longer lasting tariffs (tariffs are often short-lived; some of those imposed during the presidency George W. Bush had a life-span of around 18 months, and the current incumbent is notorious, in some quarters, for his unpredictability, so we may have to wait for further Twitter announcements).

Again because of their size, the Baltics lie fairly far down the supply chain, making components for auto industries elsewhere which, if the big car manufacturers moved further afield (outside the EU for instance) could practically annihilate the sector.

Damage to global trade flows would also have a negative impact on transport services, which employ a lot of people (around 7% of the workforce is employed in the transport sector in Estonia, and the sector makes up 8% of GDP, with similar figures in Latvia and Lithuania).

Getting under the radar

However, Estonia, Latvia and Lithuania do have something going for them, or rather, at least are more immune to continuing tariffs than other EU countries.

Not being more than very minor steel and aluminium producers, particularly in the latter, which only makes up a fraction of one percent of Estonian GDP, the direct effects of the Trump tariffs so far have not been anything like seismic, and this could continue in the future.

Even more importantly, the US, particularly for Estonia, is a minor export destination, making up just a couple of percent of GDP. There is always the danger that Mr. Trump may conflate the EU and other trading blocs with NATO which could cause further damage, not least to business confidence and consequently investments. However the visit of the three Baltic countries heads of state to Washington earlier in the year, Baltic leaders being present at the NATO summit and even the use of Tallinn Airport for Mr. Trump's backup planes during the Helsinki Summit with Vladimir Putin should all have the effect of putting Estonia on the map and in a favourable light so far as Mr. Trump goes.

Tariffs just one piece of the jigsaw

In conclusion, whilst very little good for Estonia and the region is likely to come out of further tariffs and retaliatory tariffs, the negative effects of all but the most severe reprisals are likely to be delayed, and in some cases even mitigated.

Most significant is the effect not only trade wars, be they easy to win or not, but also changes in the overall approach of the US to economic issues, could have on business confidence, investment, and Baltic security as a whole, something which naturally overlaps with other areas of global politics.

Editor: Andrew Whyte

Source: Swedbank/Nerijus Maciulis

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