February the 11th, 2025 – Donald Trump has been making waves across the pond and constant talks of tariffs are a cause for deep concern. US tariffs on the EU could cause serious harm to Croatian exports.

As Sinisa Malus/Poslovni Dnevnik writes, US President Donald Trump’s fight against the high US trade deficit is likely to come to the fore soon, according to the Focus of the Week of the Croatian Employers’ Association (HUP), written by Hrvoje Stojić.

Donald Trump has ordered the delivery of a series of reports on so-called “unfair trade practices” engaged in by other countries. That also includes apparent currency manipulation, discriminatory foreign taxes and technology transfer practices, along with all of the necessary measures to reduce the deficit.

Based on the analysis in April, the new Trump administration will have a wide range of options for targeting individual countries, industries or entire groups of countries. New US Treasury Secretary Bessent favours a general tariff that starts at 2.5 percent and increases by 2.5 percentage points per month until a maximum rate of around 20 percent is finally reached.

A general tariff of this type would limit all of the current practices of attempting to avoid it, such as the redirection of Chinese exports to the US via Vietnam. It would also take into account the revenue motive that Trump repeatedly cites whenever he gets even half an opportunity to do so. Trump believes that 2.5 percent is much too low and has thus announced the placement of tariffs on selected products such as medicines, chips, metal products, as well as copper and aluminium produced abroad.

There’s been no specific information about tariffs he plans against the European Union just yet, although Trump has repeatedly targeted Germany, especially the automotive industry. The EU itself is also leaning towards protectionism rather than pragmatically talking to Donald Trump for an array of reasons. All of this combined means that US tariffs on the EU could do serious harm to Croatian exports. Despite accusations of returning trade policy to the all the way back to the nineteenth century, Trump claims that his primary focus is on the growth of modern industry as the driving force of the US economy.

In addition to the fact that the manufacturing sector is widely deemed to be the driver of innovation for the entire economy, the strategic reasons for the renaissance of the industry are also on the rise. Against the backdrop of conflicts with both China and Russia, a robust industrial base also has a deterrent effect, given that it can quickly be converted into military production, which isn’t easy to do if the manufacturing base is depleted.

In addition to that, the investment uncertainty outside the US caused by unpredictable tariff policies is likely intentional to encourage foreign companies to open plants in the US.

“Given that the US is the EU’s main trading partner (accounting for around 20 percent of total exports, or 2% more than back in 2019) and that with the arrival of Trump, the real economic growth differential in favour of the US is increasing. As such, it has become crucial to sit down at the negotiating table and discuss concrete proposals to avoid a drastic increase in tariffs. The automotive industry and pharmaceuticals are the sectors most exposed to the negative impact of tariffs,” Stojić believes.

In the short term, the EU can significantly increase its imports of liquefied natural gas (LNG) from the US, replacing Russian LNG. It can also reduce various tariffs, especially the 10 percent on imports of passenger cars from the US, while the US charges a tariff of only 2.5 percent on such vehicles. Increasing defence spending could also further satisfy Trump’s demands.

US tariffs could really affect Croatian exports to the US, which currently amount to around one percent of GDP. Various high-tech exports, including pharmaceuticals, chemicals, electronics and IT services all dominate and have recorded very high growth rates. The share of exports in real GDP has almost doubled since the global financial crisis, reaching 29.3 percent back in 2022, while services exports through tourism have jumped to almost 30 percent of real GDP.

An EU economic setback in the event of prolonged US tariffs could negatively impact Croatian exports and GDP. If US tariffs do end up hitting European output more strongly, forecasts for growth in Croatian goods exports in 2025 and 2026 could prove to be (very) overly optimistic.

In the short term, Croatia can reduce effective income tax rates and healthcare contributions, limit the growth of the minimum wage to the level of the EU average, abolish parafiscal levies and reduce the difference in electricity prices for businesses and people. In addition to all of the aforementioned, 2.6 billion euros worth of investments in renewable energy sources, which is crucial for modern industrial production, need to be urgently unblocked.
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