How are the new 15% US tariffs on EU goods likely to impact Czech exports generally and also the Czech economy? How intertwined would it be?
“Of course, it’s not good news for the Czech economy because we must expect lower demand from abroad for Czech exports. Not just in a direct way, like exporting cars directly to the US, because the Czech Republic has not been exporting many cars there.
“But there will also be an indirect negative influence. For example, Germans would face decreased demand from the United States for their products. Because of this lower demand, the overall aggregate demand for German products will be lower, and therefore, the demand of Germans for Czech subcontracting companies will also be lower. So there will be a negative impact on Czech foreign trade.
“Czechia is highly dependent on the automotive sector, and here we see a positive development compared to the spring of this year because the tariff rate has been lowered for cars from 27.5% to 15%. So that is quite good news. But overall, the development is not good for the Czech economy, and it may hinder growth. We expect that GDP may be lower by 0.3% to 0.4% because of the tariffs.”
That was going to be my follow-up. Some speculate this could be close to recession-inducing, but generally, it seems far from that.
“Yes, we do not expect these tariffs to trigger a recession in the Czech Republic. We also do not expect them to trigger a recession in the Eurozone or European Union. So the overall impact will be quite manageable.
“But of course, when you add this development to other challenges that European industrial production is facing, such as stronger competition from Asia and high energy prices, it creates a negative combination of factors that may lead to a long-term weakening of European industrial production and manufacturing, adding to the current problems in the Eurozone and European Union.”
And what does this say about the predictability of the market? The S&P 500, I believe, is down now. Do you think the Czech economy is affected by this unpredictability? Are investors more scared at this time? Or do you think that these tariffs, now that they’re settled at 15%, can bring back some predictability?
“There is some predictability now because we know the tariff number. But there is still quite high uncertainty surrounding the deal between the United States and the European Union because we do not know the exact terms and conditions.
Photo: Tomáš Adamec, Czech Radio
“For example, an important question is how the European Union will be able to deliver on its promises to the United States. About 14 days ago, it promised it would buy energy like oil and gas from the United States for $250 billion per year. It also promised to buy weapons, arms, and ammunition from the US, and there were promises of big investments, $600 billion, from European companies in the United States. But how can Brussels push European companies to buy energy or invest in the US? That is not clear at all.
“If these promises are not fulfilled, then we may face increasing tariffs again from the US on the European Union, potentially rising to 30% or even 50%. Remember, Donald Trump threatened to increase tariff rates on EU goods to 50% starting from July 1st this year. So there is still quite high uncertainty surrounding the deal between Brussels and Washington.”