Why US-EU trade war won’t significantly impact Croatia

ZAGREB, 13 March 2025 (Hina) – The escalation of tariffs and the ensuing trade war between the United States and the European Union will have a negative effect on trade between Croatia and the US.

However, the new tariff policies introduced by the American government are not expected to have a major adverse impact on the Croatian economy, economic analyst Damir Novotny told Hina on Wednesday.

Aside from pharmaceutical manufacturers and certain food products destined for the American market, Croatia also exports a significant amount of weaponry to the US, he noted.

However, Novotny pointed out that the introduction of tariffs, alongside other policy decisions by the new US administration regarding multilateral organisations and NATO, could have a positive effect on economic cohesion among all EU member states.

Large-scale military and infrastructure investments announced by the new German government and the European Commission, he said, are expected to spur demand and create new jobs.

A Stronger EU Under Fiscal Rules

Unlike the heavily indebted federal government in the US, the EU, thanks to its fiscal rules, has the capacity to take on additional debt amounting to several trillion euros, with the exception of certain individual countries, Novotny stated.

He added that this new borrowing, combined with revised fiscal policies, will yield positive effects on economic growth and employment in the short to medium term.

In the long run, increased public investment and debt accumulation could heighten the risk of inflation and economic stagnation.

However, in the current geopolitical climate, concerns over the long-term risks of expansionary fiscal policies are not a priority, Novotny explained in response to Hina’s inquiry.

He also noted that the most significant decline in sales of European products to the US, due to higher tariffs, is expected in the pharmaceutical sector.

Many large American pharmaceutical companies have manufacturing operations within the EU and the UK and export to the US market. For instance, Pfizer operates around ten factories across Europe, including one in Croatia.

Any potential decline in US sales, he said, will likely be offset by increased sales in domestic and third-party markets.

“These projections explain why stock market indices in the EU have not seen significant declines. In some sectors, such as the defence industry, share prices have even surged. In this context, we should not anticipate any substantial negative impact of the new US tariff policies on the European economy, including Croatia,” Novotny concluded.

European Commission Responds to US Tariffs

The European Commission has introduced countermeasures in response to US tariffs on steel and aluminium imports from the EU, which came into effect on Wednesday.

“The Commission regrets the US decision to impose tariffs, deeming them unjustified, disruptive to transatlantic trade, and harmful to businesses and consumers, as they often lead to higher prices,” the Commission stated.

From 1 April, the Commission will activate previously suspended countermeasures against the United States, which were initially put on hold in 2018 and 2020.

These measures target a range of American products, including motorcycles, bourbon, and boats, in response to economic damage amounting to €8 billion caused by US tariffs on steel and aluminium imports from the EU.

In retaliation for the new US tariffs, which affect over €18 billion worth of EU exports, the Commission has also announced an additional package of countermeasures on US goods. These measures are set to take effect in mid-April following consultations with EU member states and stakeholders.

Overall, the total countermeasures applied to US exports could reach €26 billion, matching the economic scale of the American tariffs.