Trade war pushes to think of a plan B

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Lithuanian exporters are watching the impending trade war between the United States and Europe with concern. So far, the largest threat has arisen to the makers of European car parts, however the unpredictable Donald Trump may have other goods in his sights.

Discontent with the results of free trade, D. Trump’s administration established a 25% tariff on steel and 10% tariff on aluminium against the European Union, Canada and Mexico. This step was not left unanswered.

The European Union chose to tax such US imports as Harley Davidson motorcycles, Levi Straus jeans and bourbon. Canada and Mexico are also planning retaliatory measures. Tensions are rising regarding retaliatory tariffs from China, whose goods have had tariffs applied already in March.

Threatening car manufacturers

D. Trump warned of the 20% tariff to European cars in late June. This reaction from the US president was evoked by retaliatory tariffs implemented by the EU.

“These tariffs and barriers will not be revoked and removed any time soon, we will implement a 20% tariff on all their cars imported to the USA. Manufacture them here!” D. Trump stated on Twitter.

This statement has been viewed as a spike in the trade war’s intensity by analysts because when retaliatory tariffs are established for various goods, no one knows when it will end.

If the USA does tax European made cars, the Lithuanian car parts manufacturers will also feel the impact of the 20% tariff. Lithuanian Auto Parts Manufacturer and Exporter Association (LAuGEA) director Andrius Rakickas told Delfi that due to this, the number of orders would decline, it would be necessary to adjust marketing.

“With tariffs in place, manufacturers will face challenges because the prices of both suppliers and purchasers could change. There is a fair deal of ambiguity,” he said.

According to A. Rakickas, around 300 companies manufacture car parts in Lithuania. That said, only part of them are supplied directly to car factories in Europe.

The Association director stated that currently LAuGEA unites 16 companies, who employ around 1.7 thousand staff and their net revenue in 2017 reached 124 million euro.

In the latest Lithuanian goods export review from the business and export development organisation Versli Lietuva, it is written that auto parts export grew by 65.3% in 2017, reaching 39.2 million euro.

“The largest growth for these goods was in the German, Polish and Swedish markets,” the document adds. Total goods export rose by 16.9% in 2017, to 26.4 billion euro. Lithuanian goods made up 59.4% of this, with the remained being re-exported goods.

It is claimed that car parts manufactured in Lithuania are used by global transportation leaders BNW, General Motors, Boeing, Audi and Volkswagen.

What next?

According to Statistics Lithuania, Lithuanian origin goods worth approximately 1.2 billion euro were imported to the USA. Most of these were crude oil products (822 million euro), however a significant portion was comprised of furniture (97 million euro), diagnostic reagents (51 million euro) and wheat gluten (21 million euro).

“Recently we have been rapidly increasing furniture exports. Another segment is food products, it may not be large, but it is growing. There are also plastic products, but this is raw material produce,” SEB bank chief analyst Tadas Povilauskas said.

According to the economist, even if D. Trump’s list expands, the direct effect of the tariffs would not be radical on Lithuania.

“There were also fears regarding Brexit, but nothing has changed much in our export structure – it was resolved, redistributed over other markets. There will only be a threat if war in larger sums begins, large products, for example cars,” T. Povilauskas commented.

Nevertheless, he expressed hope that such a scenario will not come about and common sense will prevail.

“Perhaps we will not reach such a level, but from what experience dictates, we are beginning to talk about those plan Bs, the what ifs. We can no longer dismiss that the illogical decisions will no longer be made,” he said.

Even talks affect

Versli Lietuva export department director Aivaras Knieža told Delfi that even if a trade war between the EU and USA accelerated, it would not have the impact that the Russian embargo several years ago had.

“On the other hand, even talks of trade wars are reducing the values of future contracts. Larger manufacturers, in whose production chains we also have Lithuanians, will make contracts more carefully and will include further conditions. This will make not only the current circumstances of the companies more difficult, but could also reduce future investment,” he mused.

A. Knieža stated that one of the possible solutions would be the pursuit of alternative markets.

“Of course, not everyone can do it, but most manufacturers could adapt. This follows companies maturing and gaining experience. Today, most companies are diversifying their production and geographies have expanded, production is not just for the Germanys. There are countries, which are more exotic to Lithuania – South Korea, China, France, Italy and such,” he stated.

About Edgaras Savickas 24 Articles
Ekonomikos teorija ir istorija – sritys, kuriomis itin susidomėjau dar studijų Vilniaus universitete metu. Šias žinias kasdien stengiuosi pritaikyti dirbdamas DELFI. Nagrinėdamas makroekonomikos, finansų, socialinės politikos ir kitas verslo temas visada siekiu laikytis pliuralizmo bei objektyvumo principų. Manau, kad laisva žiniasklaida yra vienas pamatinių demokratinės valstybės akmenų, o žurnalistai – tokios santvarkos gynėjai bei puoselėtojai.
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