Analysis. Romanian exporters feel the pressure over EU-US trade scuffle

Ovidiu Posirca 10/04/2018 | 12:35

With Romanian exports to the United States having climbed to USD 2.2 billion in 2017, the risk of a trade war between the European Union and the US could pose serious challenges to local companies that have ventured onto the American market.

 

Analysts say that all sides stand to lose from a trade conflict. The EU and US economies together account for about half the entire world’s GDP and nearly a third of world trade flows.

“There would be no winners in a transatlantic trade war—only losers over the long haul,” Joseph Quinlan, an expert in the transatlantic economy and high-profile Wall Street economist/strategist, told BR. He added that consumers on both sides of the Atlantic and workers would be directly affected by tariffs.

“I expect cooler heads to prevail and believe the US-EU will avoid an all out assault on each other’s trade. The stakes are too high given the thick web of trade and investment that makes up the partnership,” added Quinlan, who authored The Case for Investing in Europe report.

 

IMF warns tariffs would hit US economy

Gloomy predictions of a trade war between the EU and the US emerged after the American president, Donald Trump, announced new steel and aluminum tariffs. His administration is imposing tariffs of 25 percent on imported steel and 10 percent on aluminum, but is temporarily exempting Canada and Mexico.

Trump said that only “real friends” of the US would avoid tariffs and it was not clear if the EU was in this category. Meanwhile, the German minister of economy Peter Altmaier and EU Trade Commissioner Cecilia Malmstrom flew to Washington to negotiate a tariff exemption for the EU with Trump. The tariffs were set to be enforced in late March.

“The EU should act with wisdom and, at least for the moment, not respond in the same manner to the US actions. The risk of triggering an escalation that would also hit other areas of cooperation between the two is quite high,” Daniel Anghel, tax services partner at PwC Romania, the professional services firm, told BR.

The European Commission, the executive arm of the EU, has already published a list of American products that would be subject to penalties if Trump’s tariffs are enforced. It covers around USD 3.4 billion of annual trade and includes everything from bourbon and jeans to sailboats. Trump reacted to the move, announcing that the US could enforce a tax on imports of EU-manufactured cars.

“Neither the US nor the EU would benefit from this situation, even if one is given to believe that the EU is more dependent on the US because of the EUR 121 billion trade surplus with the US in 2017,” said Anghel, who sits on the board of the Foreign Investors Council (FIC).

The International Monetary Fund (IMF) has warned that American import tariffs would cause damage both in the US and outside, “including to its manufacturing and construction sectors, which are major users of aluminum and steel.”

Meanwhile, US commerce secretary Wilbur Ross told CNBC that the White House is “not trying to blow up the world” with tariffs.

“We’re not looking for a trade war. We’re going to have very sensible relations with our allies,” Ross said.

 

Jobs at risk in Romania

The Americans imported USD 120.5 million worth of steel mill products from Romania in 2017, says the US Department of Commerce. In total, the EU’s steel exports to the US amounted to USD 6.6 billion, with Germany selling the biggest quantity, 1.49 million metric tonnes. Romania’s exports stood at 82,278 metric tonnes.

Looking at the figures, the EU would stand to lose the most from the tariffs, while China would be less affected. The value of Chinese steel exports to the US stood at USD 1 billion last year, but it should be pointed out that the country is already subject to tough trade penalties from the US.

Romania will be among the nine member states that will bear the brunt of the new tariffs on steel and aluminum, said MEP Iuliu Winkler, vice-chair of the Committee on International Trade in the European Parliament.

“The enforcement of such taxes by the US will endanger thousands of jobs in Romania alone,” said Winkler in a press conference. He added that the main steel products exported by Romania to the US are seamless pipes.

More than 3 percent of the country’s total steel products head to the US, with a value of around EUR 160 million, said Winkler.

“Smaller exporters like Romania would also be affected, since exports are the primary means by which firms sell goods in the US,” said Quinlan.

Local companies exporting to the US should also pay attention to the EU acquis that forbids “one to one” deals between the US and EU members.

Anghel of PwC Romania agrees that EU-based companies will be affected by the roll out of tariffs.

“However, I hope that in the end reason and common sense will prevail and the world as a whole will not revert to the ill-fated protectionist trading policies that hurt global growth so much in the 1930s, deepening the global recession during that decade and leading to the Second World War. I believe that we need to learn from history and avert such dangerous paths,” said Anghel.

While the local business environment is carefully analyzing the implications of a potential trade conflict on both sides of the Atlantic, players in the pharma sector are planning to boost their presence in the US.

The Association of Industrial Pharma Producers in Romania (PRIMER) says that its member companies are looking to tap the American market. At present, only Antibiotice Iasi, one of PRIMER’s 16 members, exports to the US.

Romania was recently included in the Mutual Recognition Agreement signed by the European Medicine Agency (EMA) and the US Food and Drug Administration (FDA). Dragos Damian, head of PRIMER, said this deal means that drugs manufactured in Romania will be exported immediately after registration to the US, without the need for additional inspection by the FDA.

“It’s possible for groups that have plants in Romania to transfer technology to these sites to accommodate manufacturing for the US,” representatives of the association told BR.

PRIMER officials declined to expand on the ongoing negotiations between the US and the EU, but pointed out that the removal of customs and trade tariffs once Romania joined the EU had both positive and negative effects. “The share of imports went up, as did patients’ access to more drugs, but paradoxically, the share of intra-EU re-exports grew, thus limiting access to certain drugs,” they commented.

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