Donald Trump calls for peace, but initiates a new global economic war. How will this affect the domestic economy
The fact that Donald Trump is trying to cut off from Europe, is probably clear even to his biggest domestic admirers after Friday's "training" of Ukrainian President Volodymyr Zelensky in Washington and Tuesday's statement that he no longer intends to militarily support the attacked Ukraine. Even more so if the American president additionally imposes a 25 percent tariff on imports from European Union countries. What implications could this have for us?
Customs are one of the means of the economic form of political struggle. The administration of newly elected US President Donald Trump has already announced the introduction of 25 percent duties on goods from Canada and Mexico. In the case of China, it is supposed to be reportedly 20 percent.
The testimony of how palpable attack this can be for the mentioned states, but ultimately for American consumers, is evidenced by the fact that imports from Canada, Mexico and China account for more than 40 percent of all imports to the United States. Only trade between the United States, Canada and Mexico annually exceeds the border of $900 billion, roughly 21 trillion crowns in conversion.
The affected countries have publicly declared that they will not tolerate this attack and will impose import duties and tariffs on American goods. Beijing has also imposed export and investment restrictions on 25 American companies, justifying this by the protection of national security.
Europe will not be spared
However, the impact of the trade war will most likely also affect the old continent. According to international rating agency S&P Global, this will be particularly felt by the Czech Republic and other Central European countries. Trump announced last week that his administration would soon announce duties on goods from the European Union. He claims the union was allegedly established to harm the United States.
The Czech Republic, Hungary, Slovakia, or Slovenia are among the countries most dependent on foreign trade. According to data from the statistical office Eurostat for 2023, exports as a share of production range from 92 percent in Slovakia to 69 percent in the Czech Republic.
Mitigating economic growth
According to Nicholas Farre, an analyst at Capital Economics, a 25 percent duty on imports of goods from the European Union to the USA would reduce gross domestic product growth in Central Europe by an average of 0.5 percent, as reported by Czech News Agency. In the region, which has greatly slowed down in recent years, US tariffs could slow down the economic recovery. This could for example affect the automotive industry, which is intertwined with the Czech Republic, where the Škoda Auto brand is manufactured, through a network of suppliers.
According to the latest report of the Organization for Economic Cooperation and Development (OECD), the Czech economic growth is expected to accelerate from one to 2.4 percent this year. Next year it should be 2.5 percent.
The OECD also anticipates a gradual reduction of the public finance deficit. This year, the deficit is expected to drop to 2.6 percent of Gross Domestic Product, following last year's 2.8 percent. Next year it should be 1.9 percent of GDP. However, it is necessary to add that the analysis lacks emphasis on the current need for increased defense and security spending, which is related to the situation in Ukraine, and of course, the report that Donald Trump plans to impose new tariffs against us.
Representatives of the European Union meanwhile stated that they will respond to any tariffs with countermeasures.
"The European Union will decisively and immediately respond to unjustified barriers to free and fair trade,"
said the union's spokesperson, as reported by the Czech News Agency. He also added that the union represents the largest free market in the world, from which the United States benefits.
Higher tariffs lead to inflation strengthening
What is common for all markets, including the American one, is primarily the fear of rising prices. Every tariff policy is usually associated with quite high inflation expectations. According to calculcations of the Goldman Sachs Bank, Americans themselves will pay an extra $170 a year just for gas, which is roughly 4 thousand crowns more. From current about 2.5 percent, inflation in the United States should thus increase to 3.5 percent, as calculated by the University of Michigan.
"The world is in a trade war. The USA has started applying the highest tariffs since 1943. Americans are therefore afraid of inflation the most in 30 years,"
described the current situation for LP-Life economic analyst Lukáš Kovanda.
However, according to Tomáš Prouza, president of the Trade and Tourism Union, in the longer term, tariffs would limit the entire transatlantic trade and lead not only to price increases but also to a shift in production from Europe to the United States and a decrease in investment by multinational firms in the European Union.
"It is also necessary to remember that trade wars never end after the first round, but are usually long-term and deepen over time,"
Prouza stated for LP-Life.
The prospects waiting for us do not sound too optimistic. Perhaps the only thing that can comfort us is the fact that many of Donald Trump's steps and statements sometimes contradict each other and what applied in his case yesterday, fortunately means nothing at all today.
Sources: author's text, own questioning, Eurostat, Czech Press Office
