The Latvian economy will not benefit from the tariff deal reached by US President Donald Trump and European Commission (EC) President Ursula von der Leyen, but the negative impact could be relatively small, mainly through trading partner countries, bank analysts have admitted.
Dainis Gašpuitis, a macroeconomic expert at SEB banka, told LETA that the deal can be considered good in the context of the trade policy initiated by the US, which in itself is conducive to chaos and uncertainty. At the same time, he noted that not all the nuances are yet known, especially with regard to the actions of the European Union (EU), which could adjust the assessment, including the impact on Latvia.
“On the one hand, there was a risk of even higher tariffs. But the question is, how long will this agreement last? On the other hand, the EU has made concessions, not choosing escalation as an option for better conditions. One aspect is the current security situation, so we have to make a bow to the US president,” said Gašpuitis.
He also stated that the Latvian economy is definitely not a winner, because it will become more difficult to grow exports to the US market, and the tariffs will also affect the eurozone. However, there will be an adjustment, and the negative impact may turn out to be relatively small. Therefore, greater emphasis and opportunities should be placed on the export of services.
At the same time, Gašpuitis also emphasized that relying on the sustainability of the current agreement is risky.
“It is likely that we will not have to wait long for new developments,”
he said.
Meanwhile, Luminor Bank economist Pēteris Strautiņš told LETA that this agreement is a major political victory for Trump, and the EU essentially recognizes the political dominance of the US.
“The EC has also promised a certain amount of energy and weapons purchases from the US. This raises questions, since these purchases are and will be made by countries and companies, not the EC, will it be possible to achieve appropriate coordination of their actions? But that will be a new day, maybe something will have changed in the meantime,” said Strautiņš.
He also mentioned that he does not think that this agreement can be considered a benefit for the US economy. US citizens and companies will pay more for European goods.
“I think that the EC strategy in this case can be described as follows –
today our task is to avoid even greater instability in foreign trade to, figuratively speaking, stay alive.
Let us use the period of relative stability to become stronger both economically and militarily and in the future determine our own destiny. We need time to correct the mistakes made in the past,” said Strautiņš.
Also, according to him, there is no doubt that the EU’s position in this case could also have been influenced by the fact that Europe is dependent on the US in the field of security, even if formally these issues are not related.
Strautiņš also added that the former French ambassador to the US, Gérard Aro, wrote on his “X” account on Monday: “Most European countries do not want the strategic autonomy of our continent. They live as members of the Euro-Atlantic community, within which they accept the leading position of the Americans without difficulty. These are vassals who are satisfied with their vassal status.” Strautiņš pointed out that Aro perfectly expresses the position of politicians in France and other countries who want to see greater European independence, while Latvia and the other Baltic states are currently on the opposite side of this discussion for quite obvious reasons – they need US security support the most.
“How does this affect Latvia? First of all, through trading partner countries.
The impact of this agreement on them can be briefly described as follows: “unfavorable, but not such that it can cause a crisis in itself,” said Strautiņš.
He mentioned that the impact on Europe as a whole can be understood by thinking in macroeconomic categories – a 15% import tariff is currently the US “norm” in trade with the rest of the world. So it does not hinder competition with US imports from other countries. In turn, the Americans cannot do without imports, their economy is already operating at the limit of its production capacity, there is full employment and slightly increased inflation. Continuing an expansive fiscal policy means that the US will continue to import more than it exports.
Bank of Latvia economist Kārlis Liede told LETA that the EU-US agreement on customs tariffs is not a precisely drawn-up trade agreement, it is more like a political agreement that can be interpreted differently. The risks of this agreement are already manifesting themselves in a similar way as a result of the trade agreement reached between the US and Japan, where disagreements have arisen over investments, both in terms of their size and return.
“Apart from the vagueness,
the positive news is that this agreement reduces uncertainty,
which has been particularly high in recent months. Financial markets have also reacted positively to this, and the European stock market has reached a four-month high,” Liede said.
Bank of Latvia economist Mareks Mateušs noted that the Bank of Latvia’s June forecasts for the development of the Latvian economy modeled the most pessimistic scenario with a 20% nominal tariff rate for EU goods to the US and an 8% effective tariff rate for US goods to the EU, which could reduce Latvia’s GDP by 0.5% in the medium term. In turn, the new agreement provides for a 15% tariff on all EU goods to the US, except for iron and aluminum, so the negative impact on the Latvian economy will be milder than the pessimistic scenario.
“As part of the agreement, no retaliatory tariffs from the EU on US goods are envisaged. Although the base scenario had a tariff rate of 10%, higher sectoral tariffs were also included, for example, 25% on cars, but this agreement provides for a 15% tariff ceiling, excluding iron and steel. Therefore, the current situation could be close to the base scenario,” Mateušs pointed out.
He also mentioned that
a 0% tariff rate has been set for such mutually important groups as aircraft, certain chemicals,
semiconductor equipment, natural resources and critical raw materials, as well as certain agricultural products. However, given the uncertainty about the exact list of products to which the 0% tariff rate will apply, it is not clear whether this exemption will also apply to the export of wood products, which is important for Latvia.
Mateušs added that the agreement envisages the EU making investments of around $600 billion and significantly increasing purchases of US energy and military equipment, including liquefied natural gas (LNG), oil and nuclear fuel, and US artificial intelligence chips that will be used in EU large-scale manufacturing plants.
Trump and Leyen announced on Sunday evening, the 27th of July, after talks in Scotland, that they had reached an agreement on the tariffs.
“We have reached an agreement. I think it is a good agreement for everyone,”
Trump told reporters at his golf resort in Turnberry, where he hosted Leyen. “It is a good agreement. It will bring stability, it will bring predictability. It is very important for our companies on both sides of the Atlantic,” Leyen said.
According to Trump, the agreement will impose a 15% tariff on EU exports to the US. The current base tariff is 4.8% and the temporary additional tariff of 10% imposed in April, so the agreement will effectively maintain the current tariff level. However, Trump had threatened to impose a 30% tariff if a trade deal was not reached by the 1st of August.
A 15% tariff will also be imposed on car exports to the US. Currently, a 25% tariff is in force on car exports from the EU. However, a 50% tariff will remain in force on steel and aluminum exports to the US.
This agreement does not apply to pharmaceutical products.
Trump intends to give foreign pharmaceutical companies time to transfer production to the US, but then impose very high import duties on pharmaceutical products, which could reach 200%.
Leyen said that a number of strategic goods will be mutually exempted from customs duties. These include aircraft, certain chemicals, semiconductor-related equipment, certain agricultural goods and critical raw materials.
The EU has committed to investing an additional $600 billion in the US and purchasing $750 billion in US energy over the next three years.
The agreement still needs to be ratified by EU member states.
As of Sunday, the 27th of July, five countries had reached trade agreements with the Trump administration. They are the United Kingdom, Vietnam, Indonesia, the Philippines and Japan.
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