Novotny: Trump’s Tariffs Likely to Have No Strong Impact on Croatia

Economic analyst Damir Novotny assessed on Thursday that the US introduction of general import tariffs represents a strong shock to international trade, but claims that due to the low commodity exchange between Croatia and the US, the direct effects on the Croatian economy will not be as strong.

– The commodity exchange between Croatia and the US is low, and the direct effects will not be as strong. Croatian companies that directly export to the US, such as arms factories or the pharmaceutical industry, will undoubtedly experience a decline in demand from the US, but they will be able to compensate for these deficits in the EU markets – said Novotny for Hina.

The biggest shock, he said, may be experienced by Croatian companies involved in the supply chains of the German automotive industry, which will experience the largest decline in demand in the short term.

An eventual EU response in the form of introducing special taxes on digital services will increase the prices of these services and have certain negative effects on competitiveness, for example, Croatian tourism, Novotny said, noting that the domestic tourism market is dominated by an American digital travel agency, which could increase the prices of its services due to the introduction of special taxes.

– I am convinced, however, that the EU is capable of absorbing these shocks in the medium term and thus actually responding to the hasty increase in customs barriers by the US government. The European industry is superior and more innovative than the American industry, the food industry produces more advanced and higher quality products, and the luxury goods industry is superior. The question remains of the supply of digital services that the EU must develop in the future to reduce the dominance of the American digital industry – emphasized Novotny.

The European internal market is large enough and domestic demand strong enough to absorb the deficits in trade with the US in the European market and in third countries with which the EU will certainly seek to increase trade exchange, the analyst believes.

The introduction of tariffs will not bring production back to the US market

Novotny believes that the US introduction of tariffs will not achieve the political goals announced by President Trump, namely, it will not bring production back to US soil.

– It is simply not possible to expect that American workers, who have lost numerous jobs in the US due to the relocation of production to countries with lower wages, could again receive high wages for simple manual jobs that do not require high knowledge and special skills. These are precisely the expectations of the working class in the US that voted for Trump – he said.

Another very important motive for introducing tariffs, as he stated, is the state of public finances in the US. The federal budget deficit is increasing year by year. Public debt reached 124 percent of nominal GDP in 2024, significantly higher than the average public debt in the EU.

Trump’s tax cuts on income and corporate profits will further deepen the state budget deficits, he said.

He also notes that, although there are prepared countermeasures ranging from tariffs to the introduction of taxes on digital services, the EU will very likely respond cautiously with the expectation that some compromise agreement will still be reached with the new US administration.

In the short term, he said, there will undoubtedly be a decrease in demand for some products that the US imports from Europe, but not for all.

Namely, Europe exports high value-added products to the US, cars, pharmaceuticals, expensive food and beverages, and luxury fashion products. European consumers, however, do not accept expensive American cars and food that does not match the consumption habits of modern European consumers.

The political sources of this trade conflict between the US and the EU cannot be resolved in the short term, and this will have certain negative consequences for the European industry, believes Novotny.