The small, open economies in the eastern part of the European Union will suffer disproportionately if the global trade war currently brewing extends to Europe, analysts have warned. 

The first shots were fired in the long-anticipated trade war on March 7, when US President Donald Trump announced 25% tariffs on imports of steel and aluminium from China. Beijing responded by saying it would impose duties on $3bn worth of US products, announcing tariffs of up to 25% on imports of food including frozen pork, wine and some fruits on April 1. 

Aside from the two countries immediately involved, the imposition of new tariffs is likely to have wider implications, and there are also fears that Trump’s imposition of tariffs on Chinese imports are just the opening salvo of a wider attempt to impose protectionist measures against products from other major trade partners that potentially will also include the EU. 

Should a trade war escalate between the US and China, consultancy Wood Mackenzie estimates that global economic growth could slow from 2.9% to 2.2% over the next four years.

“Our main concern is retaliation and escalation,” commented Jonathan Butcher, Wood Mackenzie principal economist, in a March 28 note, detailing areas where both the US and China may decide to impose new tariffs. “That risk is itself a threat to the global economy. We are currently enjoying a period of robust global growth, but sentiment plays a big part in maintaining economic momentum. The threat of a trade war could dampen sentiment, slowing consumer spending and business investment.”

On a more positive note, however, Butcher describes the development of a trade was as an “outside risk”. “But what if a trade war does develop… There are no winners in such a situation,” he adds. 

Analysts focussed on the Central and Southeast Europe region have warned of the dangers posed by an international trade war even if Europe is not currently involved. 

As the current growth cycle passes its peak, a gradual slowdown is expected in the next few years but, warns Dan Bucsa, CEE chief economist at Unicredit Bank, the most important risk to this outlook for Central and Southeast Europe is trade wars.

“Global trade had been slowing to some extent for a couple of months before Mr Trump intervened with his tariffs on imports, which is probably the most disruptive thing coming we’re seeing for the global economy,” Bucsa said in a presentation at the SEE Property Forum in Bucharest on March 29. 

“The main risk is trade wars,” Bucsa stressed. “Mr Trump … is trying to reduce the US trade deficit with various countries by brinkmanship. It’s working so far with China. It’s working with Korea. The next to follow is Japan, and then it will be our turn,” he forecast. 

Analysts expect a trade war with the US at some point because the Eurozone generates one of the largest trade surpluses with the US. Aside from Germany, Bucsa expects the worst impacted countries to be those from Central and Southeast Europe. 

“Some countries [in the region] are among the most open in the world — the Czech Republic, Hungary and Slovenia. Even others like Serbia, Romania and Croatia, which have a lower degree of openness, are much more open than other emerging markets like Brazil, India or Indonesia. So if there’s going to be going to be a trade war we will be affected,” says Bucsa. 

He adds, however, that the scale of the problem is hard to gauge. “That is the sort of risk we cannot measure exactly because so far no one has managed to read Mr Trump’s mind and I doubt we should try to.”

Economists from the Vienna Institute for International Economic Studies (wiiw) also warned of the risk of a global trade war for the Central and Southeast Europe region. This, according to a recent wiiw report, is one of the big three global level risks to the region’s outlook alongside the end of ultra loose monetary policy and the potential bursting of financial markets bubbles. 

“A potential trade war has become more of a realistic threat in the last few days,” wiiw economist Richard Grieveson told a webinar on March 13. “If there are only tariffs including on metals and steel, the implications are negative but not drastically so. However, if it widens into a full scale trade war, it will be much more of an issue for Europe and maybe even especially for our region.”  

Meanwhile, Ankara has already hinted at countermeasures should Turkish exports be targeted by the US authorities. Turkey would consider retaliating against any steel tariffs introduced by the US by pushing up duties on American cotton imports, an economic adviser to President Recep Tayyip Erdogan said on March 6.

The threat of an international trade war is emerging at a time when CEE is booming, with every economy in the area experiencing positive growth last year, for the first time in a decade, as they benefitted from global growth. wiiw anticipates this will continue — as long as major international economies also continue to expand.