Over the weekend, President of the United States Donald Trump introduced new tariff policies targeting the EU. The announcement was posted as a letter addressed to the President of the European Commission, Ursula von der Leyen, on his own platform, Truth Social. The new 30% rate is set to take effect starting on August 1st and will apply to all goods imported to the U.S. from the EU.
This article explores the impact of new U.S. tariffs on Czechia and the EU, government’s reaction, analyzing both the direct and indirect economic effects of Trump’s new trade policy.
Government’s reaction
The Prime Minister, Petr Fiala, commented on the new policies, highlighting the importance of a coordinated, diplomatic approach the states of the EU must take in order to be successful in minimizing the negative impact of the tariffs on transatlantic trade relations.
Former Minister of Finance and Prime Minister — now leader of the opposition — Andrej Babiš also shared his views on the White House’s action. Although he has always been a firm supporter of Trump, he disapproved of his trade policies, pointing out the unreasonableness of the economic impact that barriers on free trade will have.
While most of the time the Czech shadow government disagrees with any approach the current party in power takes, at this moment they fairly uniformly disapprove of Trump’s decision to increase the trade barrier.
Economic impact
The overall economic effect on the Czech economy will be twofold. First, through direct impact from goods that Czechia exports to the U.S. But more significantly, the indirect effects will play a bigger role, as Czechia exports massively to countries like Germany, where those products get a tariff increase once sent to the United States. We have looked at both types and talk about them below.
1. Direct effects on Czech industries
Czechia has a slight trade surplus with the U.S., amounting last year to over 4 billion CZK (~165,000,000 EUR). It exports niche, mainly industrial and highly technologically advanced products— engines, mobile phones, or microscopes. Of those, mobile phones are the largest item, summing up to 6.4 billion CZK last year. Electron microscopes are in second place at 6.3 billion CZK. Additionally, for companies like PBS— which delivers jet-propelled engines— the U.S. market is essential.
2. Indirect effects
No matter how significant the change will be for some Czech companies, the secondary effects will have by far a greater impact on the Czech economy. Through countries like Germany— the largest economic partner— Czech companies deliver car parts and other technological components. Exports of intermediate goods will be affected, as those countries are by and large sending the final products to the North American market.
3. Total effects
The overall effect of increased tariffs is somewhat equivocally predicted by experts, with some differences on the scope of impact and timing.
One view, proclaimed by some economists, is that as U.S. prices increase, Czech competitiveness will decrease along with Germany’s, which then might want to decrease its production or move it outside of Europe. That would mean lower demand for Czech imports as well. However, as Vít Hradil, Chief Economist of Investika, points out: “We are somewhat lucky in our bad luck, as Donald Trump imposes tariffs virtually on everyone, so we are not losing the competitiveness of our goods with regards to other countries — Mexico, Chile, Canada, et cetera.”
Due to the dual nature of the effects, economic impact could come with a delay. Former World Bank representative for the Czech Republic, economist Jana Matesová, said for Seznam Zprávy: “There won’t be an immediate effect on the Czech economy and business for sure. Because the threat of high tariffs has been here for so long, European and other exporters multiplied their stock in the U.S. And we see it in the data. In other words, goods that will arrive in the United States in the upcoming months are already in the United States. It won’t have an immediate effect.”
The above points are being discussed among economists, but one thing remains undisputed. Both Hradil and Matesová agree that while the tariff impact will be somewhat negative for the Czech economy, it won’t come with enough force to cause a recession or economic crisis. GDP will be slightly affected, and regarding employment, Hradil mentioned that the manufacturing industry could lose a few tens of thousands of jobs.
Europe overall
Czechia is part of the EU, which by the end of 2024 recorded the second-largest trade surplus with the U.S., only behind China. It is not surprising that the policy’s impact on Czechia is far less significant in comparison to the greatest exporters from the EU.
- At the top of this positive trade balance is Ireland, contributing 93 billion EUR, largely due to major American pharmaceutical and technological companies operating within its borders. Big pharma alone makes up 22.5% of the overall exports from the EU to the United States.
- Ireland is followed by Germany, which exports a wide range of machinery and steel, with the automotive sector leading the way.
- The Italian Farmers’ Union Coldiretti predicted that the U.S. tariffs could cost Italy’s exporters close to 2 billion EUR exporters close to 2 billion EUR
Conclusion
The new U.S. tariffs announced by President Trump will impact Czechia and the EU, with both direct and indirect effects. Czechia’s exports to the U.S. are modest, but the indirect impact through trade with Germany and other EU countries will be more significant. Experts predict a moderate economic effect, with some loss in competitiveness, but not enough to cause a recession. While the tariffs pose challenges, they are unlikely to have an immediate severe impact, thanks to existing stockpiles. Overall, a coordinated EU response will be key to mitigating long-term consequences.
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Sources: https://english.radio.cz/pm-fiala-us-tariffs-threaten-eu-trade-8856738, Czech leaders react to new Trump tariffs on EU goods: ‘Chaotic and impulsive’, https://www.seznamzpravy.cz/clanek/ekonomika-trumpova-cla-a-cesi-firmy-se-pripravily-dopredu-rika-ekonomka-281758, https://www.ceskenoviny.cz/zpravy/2697637, https://www.hrot24.cz/clanek/usa-eu-cla-donald-trump-obchodni-valka-dopady-bilance-irsko-nemecko-cesko-HYYs4, https://www.irozhlas.cz/ekonomika/desitky-tisic-cechu-bez-prace-trumpova-cla-budou-mit-rozsahly-dopad-na_2507121951_kvr.
