Trump's new tariffs will hit Eastern Europe hard, EBRD
Photo: Donald Trump will hit Hungary and Slovakia with tariffs (Getty Images)
The European Bank for Reconstruction and Development (EBRD) has revised the regional economic forecast for 2025 downward by 0.3 percentage points compared to its September 2024 projection. The US plans to raise tariffs will primarily impact Slovakia, Hungary, and Lithuania, the report states.
According to the forecast, economic growth in the countries where the bank invests is now expected to average 3.2% this year and then accelerate to 3.4% in 2026.
This downward revision is mainly due to weaker external demand in Central Europe, the Baltic states, and Southeastern EU countries.
The new report, "Weaker momentum amid fragmenting trade and investment", highlights growing uncertainty surrounding potential US import tariff hikes and possible retaliatory measures from trading partners.
According to the report, even the increasing uncertainty alone is enough to deter investment, weaken production, and disrupt global supply chains. Beyond uncertainty, the short-term impact of tariffs and trade restrictions on individual economies will depend on whether the tariffs apply universally or only to selected trade partners.
A scenario in which the US raises tariffs on all imports by an additional 10 percentage points could lead to a 0.1–0.2% GDP contraction in EBRD regions in the short term. Meanwhile, Slovakia, Hungary, and Lithuania are among the European economies most vulnerable to such measures due to their overall trade dependence on the US market.
The report also shows that Bulgaria, Slovenia, and Romania are particularly vulnerable to the recently announced US tariff increases on steel and aluminum.
Economic analysis further indicates that if tariffs are applied selectively, economies with privileged access to the US market could benefit from trade diversion and increased foreign direct investment (FDI).
Rising geopolitical tensions have led to a sharp decline in trade volumes and FDI between geopolitical rival blocs - one centered around the US-led West and the other around China/Russia. At the same time, FDI from China and the US into so-called buffer economies such as Uzbekistan, Vietnam, Mexico, the UAE, and Saudi Arabia has surged, the report notes.
It is worth recalling that US President Trump has signed orders to raise tariffs on all steel and aluminum imports to 25%, with no exceptions or exemptions. These tariffs will take effect on March 12. Additionally, the US president announced his intention to impose tariffs of around 25% on automobiles, semiconductors, and pharmaceuticals.
Trump also stated plans to introduce a 25% tariff on goods from the European Union. According to him, "that’ll be on cars and all other things."
