In April of this year, President Donald Trump unleashed a trade war against the world and declared that the Golden Age of America had begun. President Trump imposed tariffs on every country in his new policy aimed at increasing government revenue and compelling foreign companies to produce their products on US soil. Last Sunday, the EU Commission President agreed on a 15% tariff on most of the EU products entering US soil.
The EU-US trade deal has been criticised by various leaders and MEPs while industry lobbies lamented the 15% rate.
President Trump has made securing tariffs with the EU a priority given a trade deficit on EU products that he considers as unfair. Trump says that the US is losing a lot of money on this trade deficit but this is not actually accurate. Although the US has a trade deficit with the EU on goods, the EU has a trade deficit with the US on services. The trading relationship between the EU and the US is actually much more balanced than President Trump projects.
In addition, a trade deficit in goods is not necessarily detrimental to an economy if it is balanced by surpluses in other areas, such as services, investment income, or capital inflows. In the case of the United States, while it runs a persistent goods trade deficit, this is offset by a strong surplus in services and massive foreign demand for US financial assets. Moreover, the US Dollar’s status as the world’s primary reserve currency allows the US to export Dollars, facilitating global trade and investment, which, in turn, supports its ability to sustain trade deficits without triggering balance of payments crises
The US has collected up to $150 billion in tariffs so far. It is important to note that these tariffs are paid by the US consumer when the product arrives at the US border. Why would these tariffs be a problem for European producers if ultimately it is the consumer that pays them?
Tariffs increase the price of imported goods by adding a tax at the border. By imposing tariffs on foreign products, the US aims to give an advantage to domestic producers, who can sell their goods without additional tariffs. This policy is intended to make local products more price-competitive within the domestic market. In a highly competitive global economy where price plays a critical role in consumer choice, tariffs can significantly compress foreign producers’ profit margins and reduce their market share. At the same time, tariffs may also raise prices for consumers and disrupt supply chains, depending on the availability of domestic alternatives. The Federal Reserve is warning that tariffs may increase inflation.
It is still too early to tell how tariffs have impacted EU exports to the US because the June data is still unavailable by Eurostat. EU exports to the US declined slightly in May from €47.7 billion in April to €46.2 billion in May. German exports to the US in April declined by up to 10% from the previous month of March. Total EU exports to the US in March were at €71.1 billion.
Clearly the data shows that imports of foreign goods to the US have been decreasing since April. According to the US Census Bureau the US has been importing less foreign goods since April. The US has imported $276.1 billion of goods in April, $275.7 billion in May and $264.2 in June.
Malta can be impacted by the tariffs because it has been increasingly exporting to the US mainly in semiconductors and electronic components. There may be an exception for tariffs on semiconductors but the details still need to be negotiated and fully published. European car exporters are expected to be critically hit. Malta could face negative economic impacts if tariffs cause a slowdown on European industrial production, which in turn drags down economic growth in Europe. Malta’s President of the Chamber of Commerce called for the government to take a targeted-approach to support the industries that will be hit, a commitment that was recently also made by Italian Premier Giorgia Meloni.
The European Union still needs to iron out the details of the deal apart from having it approved by the European Parliament. The 15% tariff seems to have been agreed upon but nothing is yet guaranteed before the deal is approved by Parliament.
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