CEE economies would suffer under a potential Trump presidency, primarily due to anticipated new trade tariffs, according to new research by Erste Group. The trade conflicts would impact the region indirectly through its economic reliance on Germany, says the bank’s CEE research team.
Donald Trump has repeatedly called for tariffs of 10% on all imports and 60% on imports from China. Trump's previous tariff hikes on China and potential additional tariffs could lead to global trade disruptions. Although the EU does not directly compete with China in U.S. markets, an increase in U.S. tariffs could lead to intensified trade tensions, indirectly affecting the CEE economies by hampering investment and increasing uncertainty.
Although CEE exports to the U.S. are relatively modest, CEE economies would still be significantly impacted due to their reliance on Germany. As the U.S. is Germany's largest export partner, Germany’s economy would be hit hard if severe tariffs were introduced, creating a ripple effect across the CEE region.
Hungary and Slovakia most exposed to U.S.
For CEE economies, exports to the U.S. represent a relatively small portion of their trade. Slovakia and Hungary are the most exposed, with U.S. exports accounting for 4.5% and 3.8% of their total exports, respectively.
Germany is a primary trading partner for CEE countries. With the potential negative economic fallout from the U.S.-China trade wars impacting Germany’s economy, CEE nations would be vulnerable to knock-on effects. Czechia and Romania, in particular, are highlighted as likely to see reduced GDP growth due to their strong economic linkages with Germany’s manufacturing sector.
A renewed trade conflict would also generate significant uncertainty for companies, likely causing delays in investments. This ripple effect would impact multiple economic sectors, with the indirect effects on the Eurozone economy potentially surpassing those from direct trade flow disruptions.
Uncertainty over Ukraine
Moreover, Trump's stance on NATO burden-sharing could pressure CEE countries to increase defence spending. Poland, already a leading NATO supporter with elevated defence budgets, may bolster its defence investments. Conversely, nations with lower defence spending might face reduced U.S. security support, posing regional security concerns.
Trump’s intent to reduce U.S. aid to Ukraine could shift the burden to European allies, leading to increased defence and humanitarian spending for CEE nations. This shift could stretch regional budgets, with Romania and Poland already key NATO and Ukraine support hubs.
Pressure on green transition
Trump’s energy policies emphasize fossil fuel production, potentially conflicting with the EU’s green transition goals. This may create additional pressure on CEE economies reliant on fossil fuel exports or imports, potentially slowing their green energy transitions if U.S.-Europe energy relations were strained.
In summary, the Erste Group analysis foresees a new Trump presidency intensifying trade uncertainties, and defence spending pressures, and potentially undermining regional stability, especially in countries with high German and NATO linkages. These dynamics could collectively slow growth and investment in CEE economies.
