IME economist warns of risks from retaliatory tariffs

Should Europe “pull out the bazooka” by responding to US President Donald Trump’s tariffs with similar measures – for instance by aiming at technology giants, which are mainly based in the US – this would be a big danger, a negative move and an escalation of the trade war, Institute for Market Economics (IME) senior research fellow Petar Ganev told bTV in an interview on April 4.

“The global price hike due to Donald Trump’s tariffs will also come to Europe. The big question is whether we take measures if we want to pull out the bazooka. Europe can pull out the bazooka in related to services by taking similar measures, but in the direction of the technology giants, which are mainly in the US,” Ganev said.

“This is actually the big danger, because in my opinion it is a negative move and an escalation of the trade war if European politicians are tempted to hit Donald Trump in the same way,” he said.

Ganev said that the right move is to undertake efforts to restore competitiveness in Europe.

He said that Trump’s tariffs mean the return of a state in world trade from 50 or 100 years ago.

“Now we are used to everything being very free. There are tariffs for certain countries and goods, but the Western world as a whole trades quite freely.

“Now we are returning to a position that our generation has not seen and in which in some cases it is almost impossible for goods from Europe to go to the US or from the US to Europe, given the escalating trade war,” Ganev said.

“If we assume that the table that was shown comes into force, the immediate blow is to consumers in the US, since all goods that come from Europe and China at the same price will either become more expensive or simply will not be able to come and it will take time for the market to restructure,” he said.

This process also affects manufacturers, and 20 per cent of Europe’s foreign trade is with the US, Ganev said.

“When you lose a market, they have to decide whether to redirect their goods or open factories there, which is Trump’s wish. However, this takes time and cannot happen on the scale they imagine,” he said.

He said that the greater effect is not in direct exports, but in indirect ones.

“A major part of our (Bulgaria’s) exports is for intermediate goods that enter large factories. We produce some car parts, they go to the factory in France or Germany, and there the entire car is exported to the US. So this indirect effect is greater for our market if German exports are hit,” Ganev said.

However, European countries within the EU trade twice as much with each other than with the outside world, he said.

“The huge trade is within this large European market in which we participate. But still, when your largest external partner hits you in this way, it means lower growth,” Ganev said.

He said that inflation will be Trump’s biggest problem, since the first blow is to consumers in the US.

“If there is an indicator that can decide elections to the greatest extent, it is the cost of living. When inflation and people’s spending are up, it becomes very difficult for any politician to maintain a high rating. So we will probably see all sorts of twists and turns,” Ganev said.

(Photo via Ganev’s Facebook page)

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