Trade war's effect on Baltic economies in the spotlight

An interesting new report from Swedbank attempts to estimate the possible effects on the economies of the Baltic states of trade wars which are unfolding across the globe in the wake of U.S. President Donald Trump's decision to impose tariffs on various imports and responses to that action from China, the European Union and others.

An interesting new report from Swedbank attempts to estimate the possible effects on the economies of the Baltic states of trade wars which are unfolding across the globe in the wake of U.S. President Donald Trump's decision to impose tariffs on various imports and responses to that action from China, the European Union and others.

"The Baltic economies are among the most open in the world. Total trade (imports plus exports) make up more than 150% of GDP in Estonia and Lithuania, and almost 125% of GDP in Latvia. This compares to 86% in Sweden and in Germany. However, all three Baltic countries sell less than 5% of their exports to the US. All three Baltic countries sell between 60% and 70% of their exports within the EU. This means that Baltic countries are relatively immune to the direct impact coming from the US tariffs on imports from the EU. Manufacturing of vehicles, machinery, and iron and steel products makes up less than 5% of GDP in Latvia and Lithuania, and 9% in Estonia. These sectors employ 3% of employees in Latvia and Lithuania, and 4% in Estonia," said Swedbank.

While the impact of current tariffs is "negligible", the imposition of further measures could start to have an effect on the Baltics, the report suggests.

" Thus far, tariffs are imposed on a very small fraction of EU exports and do not risk negatively affecting supply chains and demand for Baltic exports, both within and outside the EU."

However if tariffs were enacted on more goods and services and were here to stay for longer, "that could start affecting supply chains and hurting Baltic companies that export to the EU. For example, car manufacturers could shift some of the manufacturing to other regions, and demand for car parts, produced in the Baltic countries, could fall," the report said.

"A broader-scale trade war would damage the Baltic countries not only directly, but also indirectly – through weaker confidence, lower investments and consumption, and a possible disruption in supply chains. Even if the Baltic countries export relatively little to the US, they supply a lot of intermediary goods to manufacturers in Germany and the Nordic countries."

The full report is available from Swedbank.

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