Professor at the Faculty of Political Science, Kristijan Kotarski, emphasizes that the U.S. introduction of general import tariffs represents a serious challenge for global trade. Although the direct effects on the Croatian economy will not be strong due to the relatively small trade exchange with the U.S., Kotarski warns of potential indirect consequences. Croatian companies connected to the German and Italian economies could be particularly affected, feeling greater pressure due to U.S. tariff measures.
– In the short term, tariffs will certainly negatively impact the net export component as one of the four pillars of GDP. The key question now is how much this decline will be compensated by the public consumption component and all that is being announced regarding the relaxation of the debt brake in Germany, as well as the idea that part of defense spending will be financed through joint borrowing by all EU members. Over time, we will see how these forces will play out and what the final result will be. For now, we see that the European capital market is benefiting from the uncertainty created by Trump with his announcements and the withdrawal of tariffs, as well as yesterday’s final announcements of much higher tariffs than expected. In any case, for about two months we have been witnessing an influx of capital into European capital markets from the U.S. as the Euro Stoxx 50 has significantly outperformed the leading U.S. index S&P 500 – says Kotarski.
Regarding tariffs, he states that they will certainly have a ‘pro-inflationary’ effect, but it remains to be seen how much these tariff rates will affect the increase in inflation itself and what the reactions of the U.S. central bank, the Federal Reserve, will be. If the Fed goes for an increase in interest rates and manages to maintain autonomy, and Trump does not question the independence of the U.S. central bank, which would be catastrophic for the reputation and position of the U.S. dollar as a key reserve currency in the long term, this will have the effect of falling employment, i.e., increasing unemployment, and could very easily cause a negative effect. Kotarski explains that this would then be a combination of high inflation and rising unemployment, which we call stagflation, and that is ‘an extremely difficult economic disease that is really hard to treat.’
– Regarding the impact on the Croatian economy, we export one billion dollars worth of goods to the U.S. and import the same amount, our trade balance is balanced in terms of goods trade, although we have a surplus of about 600 million dollars in services. We had hoped that, based on such a balanced balance and without stepping outside what might be unacceptable to Trump, we would fare better; however, he applied a 20 percent tariff to all members – including those with much larger surpluses as a percentage of GDP like Germany and Italy, as well as to us who have a negligible surplus, i.e., balanced trade. This is about 0.4 percent of GDP made up of exports to the U.S., and in any case, we are somewhere in the middle of the scale in terms of GDP exposure to U.S. tariffs. The most affected will be Belgium, Italy, Ireland… What particularly concerns us are Italy, Germany, Austria, and Slovakia due to the automotive industry. These are strong indirect effects because Germans and Italians are our most important trading partners, and this will certainly spill over to suppliers who rely on those countries. Of course, an additional effect will also be expressed in tourism – claims Kotarski.
