BR Analysis! Trump’s trade war hits Romania in a moment of booming exports to the US

Sorin Melenciuc 24/08/2018 | 07:00

The trade war between the main global economies, triggered by rising import tariffs decided by Donald Trump, hits Romania in a moment when its exports to the US market are booming, official data suggest.

During the first five months of this year, Romanian companies have exported in the United States goods totaling EUR 487.7 million, up 12.3 percent compared with January-May 2017, according to a fresh National Institute of Statistics (INS) report.

These data are showing the Romanian-US trade picture just before the beginning of the “trade war”.

On June 1, 2018, US President Donald Trump ended exemptions for the EU, Canada and Mexico from tariffs of 25 percent for steel and 10 percent for aluminum.

The European Commission launched a legal challenge against the US tariffs at the World Trade Organization and hit back with duties of 25 percent on bourbon, jeans, motorcycles, orange juice and a variety of steel products made in US, ratcheting up a transatlantic trade conflict.

Mexico retaliated to US tariffs on steel and aluminum by introducing tariffs on American products ranging from steel to pork and bourbon.

Canada has also announced retaliatory tariffs on USD 12.9 billion worth of US exports from July 1.

But this could be only the first phase of a larger trade war between the global economies. An internal memo circulated among EU governments and obtained by Bloomberg shows that the global trade war is about to get worse and the rules-based system of international commerce is expected to revert to an environment where the strong impose their will upon the weak.

Romania, a member of one of the largest global economies – the European Union, could feel the impact of this trade war through several channels.

Indirect blow

The main obvious channel is the trade balance, even if the United States is not a large trading partner for Romania.

In 2017, Romania exported goods of EUR 1.1 billion to the US market – or 1.8 percent of total exports, the US being only the 14th main foreign market for Romania – and has imported from the US goods of EUR 1.09 billion – 1.4 percent of total imports, according to official data consulted by Business Review.

But Romania risks to be hit harder through other channels, and one of them is the indirect trade with the US.

Romania’s main export market is Germany, which has bought almost one quarter (23.4 percent, totaling EUR 6.6 billion) of its exported merchandise in the first five months of this year.

Romania supplies Germany mainly with spare parts for its best-selling cars, and many of these German cars are exported to the US market.

Germany’s exports of high value-added cars to the US market was one major argument for Donald Trump to support his decision to end tariff exemptions for the European Union.

If the export of German cars to the US market are declining, Romania risks being hit as well, as a supplier of Germany’s car manufacturing industry.

Consumption and investment

But Romania could be hit also through other channels.

“Although in 2017 the intensity of international trade has increased, protectionist measures could undermine the recent favorable course of global economic activity. The impact of these decisions could be manifested through two main channels, affecting both consumption and investment,” the National Bank of Romania (BNR) said in its recently released 2017 annual report.

The central bank’s experts say that higher import prices could put pressure on production prices and reduce the purchasing power of households, especially if imported goods can’t be substituted by domestically produced goods.

“This dynamic would be reflected in consumption and investment, while reducing employment,” the report points out.

A possibly escalating trade dispute would affect both consumer sentiment, causing households to postpone or reduce their spending, and the investment environment, which should reconsider their business plans, economists estimate.

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