Trump’s ‘Liberation Day’ is here: What do the USA’s new tariffs mean for Czechia?
On April 2nd, in the White House’s Rose Garden, President Donald Trump stunned the world by announcing his new set of taxes on imports into the USA. The tariffs, which have a baseline of 10%, are designed to stimulate the country’s domestic economy, while also chastising what the White House has called the “worst offenders” – countries that have imposed high tariffs and trade barriers of their own on American imports.
To understand Trump’s “Liberation Day” and what it means for Czechia, Danny Bate spoke to Lukáš Kovanda, chief economist at Trinity Bank.
Let's begin with a working definition: what is a tariff?
“A tariff is a kind of tax. When a company wants to export goods or services into another country, this tax has to be paid, although it's paid by importers of the respective country that is imposing this tax.
“It's not paid by the exporting country or the company there, but it is expected that prices will go down in the exporting country, to absorb the higher prices of imports. Otherwise it's not competitive on the importing country’s market.
“This is something that helps companies in the domestic country – the country of the destination of the export. Domestic producers can be more profitable and more competitive, because of the higher barriers of entry for companies abroad.”
The USA has a long history of using tariffs. This is nothing new. Why though does Mr. Trump like them so much?
“Because his conviction is that, for decades, the USA has been ripped off by the rest of the world, and that other countries have taken advantage of the United States to a large extent, setting up asymmetrical tariffs and other obstacles for trade.
“In many cases, this is true. The USA has imposed lower tariffs for different countries, and these countries have imposed higher tariff for goods or services from the USA. So, to some extent, Mr. Trump is right.
“But he is going much further. His intention is to impose much higher tariffs than those that most other countries have been imposing. This is not a good solution for the asymmetrical settings. This reaction is too strong. It does not reflect reality well, because the disproportion is even stronger, except now it's the USA that is imposing higher tariffs than the rest of the world.”
From the perspective of Europe, specifically here in Czechia, what should we be expecting now? People are saying that Czechia is going to be among the countries of European countries most affected by these tariffs. Is that true?
“Yes, there have been a number of analyses that claim this. For example, last October, a Danish industry confederation published its analyses, with a computation of the impact on individual countries in the European Union. The impact of the tariffs on the Czech Republic was really among the strongest in the bloc. It may take about 300 billion crowns from Czech economy in 2027, according to that study. But that was only with a 10% tariff, and now the tariff is two times larger. So the impact may be even worse for the Czech economy.
“This is because the Czech economy is very open. It's dependent on the automotive industry. It's dependent on countries like Germany, and in an indirect way also on China. These are amongst the countries that the Trump administration is imposing high tariffs on.
“The automotive sector has its own new tariff of 25%. It was introduced last week, so that’s another sort of tariff, but it's the sort that is very harmful, potentially, for the Czech economy.
“Other than that, there was a study of Oxford economists this year that claims that the impact won't be as strong as the Danish study expects, but still the Czech Republic will be amongst the countries that are really hit quite strongly.”
Let's hope then that the Oxford experts, rather than the Danish experts, are right.
