The trade war presents Europe with an opportunity to leverage the situation for a strategic edge and a push to reduce its dependence on the United States — whether in the areas of technology, energy, defense, or raw materials.
The United States’ game of imposing tariffs, along with the European Union’s retaliatory duties, does not support free trade. It is clear that endlessly raising tariffs on both sides benefits neither party. However, the uncertain situation may actually give European companies a competitive edge for growth.
Estonia Supports Rules-Based Free Trade
International trade has become so deeply intertwined, with supply chains closely connected, that the decisions of a single player — especially a major one — inevitably affect the entire playing field. The already complex landscape of trade policy has been further shaken by the United States’ abrupt shift in direction.
According to the European Commission, the gap in tariff rates is already as high as tenfold, as many EU exports to the U.S. are subject to a 25-percent tariff. Even during the temporary suspension, the EU’s weighted average tariff on total exports remains at 10 percent. Meanwhile, the European Union continues to tax imports from the United States at just a few percent.
Estonian government decided to support the temporary suspension of the EU’s countermeasures for up to 90 days in order to allow additional time for negotiations between the European Union and the United States.
What gives businesses confidence is a rules-based system and the knowledge that laws, regulations, and tax rates apply as established. Sudden changes to the rules of the game create uncertainty, undermine trust, and reduce companies’ ability to plan their operations. In turn, this raises the cost of goods and services and ultimately hinders economic growth. None of us want that — not even the United States.
Estonia firmly supports a rules-based free trade system, which has also been the foundation of its economic success. Liberal economic policy has served it well, as Estonia has become one of the fastest-growing developed economies in the world since the upheaval of 1991.
U.S.-EU Trade and Investment Relationship Largest in World
When the United States imposed 25-percent import tariffs on steel and aluminum from the European Union on March 12, it affected EU exports valued at $28 billion. In response, to protect its own economy, Estonia introduced counter-tariffs totaling €22 billion. The U.S. then continued by imposing tariffs on cars, and on April 2, it decided to raise tariffs by an additional 20 percent. Europe has yet to respond to this latest move.
Of course, our preference would be a trade agreement with the lowest possible tariffs — ideally none at all — for as many categories of goods as possible. According to the European Commission, the average tariff rate for both sides was previously around 1 percent. In 2023, the U.S. collected approximately €7 billion in tariffs from EU exports, while the EU collected around €3 billion from U.S. exports.
Equally important is the fact that the trade and investment relationship between the European Union and the United States is the largest in the world, accounting for 42 percent of global GDP and supporting more than 16 million jobs.
At the moment, we have no clear idea what the United States’ next move might be or how negotiations with the European Union will end. In any case, there is hope to reach a reasonable solution within the next 90 days. If not, Europe is prepared to respond with countermeasures, as a situation where there is roughly a tenfold disparity in tariff rates between two equally developed economies is not economically sustainable.
Americans Want To Wear Nike, Not Make It
It is worth recalling that the European Union was also hit with tariffs during Donald Trump’s first term, including on steel and aluminum. The results of that policy are now clear: production of those goods in the United States did not increase. What did happen was a rise in prices, a decline in EU exports to the U.S., and an increase in imports from third countries where goods were cheaper to source.
To assume things would turn out differently this time is, to put it mildly, naive. The current unpredictable game of ever-higher tariffs will likely lead to even greater price hikes — ultimately to the detriment of American consumers.
Moreover, it is evident that there is little interest in the U.S. in engaging in production; the focus is more on consuming finished products. A particularly telling example is passenger cars: in 2024, the EU exported approximately 750,000 vehicles to the U.S., worth €38.5 billion. In contrast, the EU imported only about 164,000 vehicles from the U.S., with a total value of €7.7 billion. An even more striking and simplified illustration was once offered by a well-known American comedian, who said that Americans do not want to make Nike sneakers — they just want to wear them.
Uncertain Situation Could Deliver Growth Advantage To European Companies
Tariffs impact the global trading system as a whole and unpredictability breeds uncertainty. For Estonia, the economic effects of U.S.-imposed tariffs are felt primarily through the German and Scandinavian economies, but for now, that impact remains relatively modest.
The European Central Bank has estimated that the initial round of U.S. tariffs would reduce eurozone economic growth by 0.3 percent in the first year. However, if additional tariffs and countermeasures follow, the effect could exceed 1 percent.
Negative consequences cannot be ruled out entirely. That said, the trade war also presents an opportunity for Europe to gain a strategic advantage and a push to reduce dependence on the United States — whether in the fields of technology, energy, defense industry, or raw materials.
Strengthening Europe’s own defense capabilities, in turn, creates growth opportunities for Estonian defense industry companies. In addition, Europe could use the situation to modernize its industry. Estonia’s top-tier IT and tech firms have a significant advantage and the capacity to play a larger role in digitalizing and automating European industrial enterprises.
Right now, it is nearly impossible to predict how or when this trade war will end. It could conclude with higher tariffs and deeper protectionism, or it could just as well result in new free trade agreements and the removal of tariffs altogether. Each new day brings new developments. We must keep a cool head, monitor the situation closely, and respond as necessary.
The article was originally published here: https://news.err.ee/1609671473/erkki-keldo-tariffs-tornado-could-deliver-growth-boost-to-estonian-companies
Written by Erkki Keldo – minister of economic affairs and industry (Reform).
Continue exploring:
From State to Market: Thirty Years of Economic Success in Estonia
Free Trade Fuels Prosperity. Trump’s Tariffs Are Making World Poorer