EBRD: New US tariffs to affect exports from countries in region, including Azerbaijan

Expected changes in US trade policy could significantly affect exports from countries in the European Bank for Reconstruction and Development (EBRD) region, especially in the context of tightening tariff measures, reads the EBRD's May update "Regional Economic Prospects," Report informs.

"The new tariffs are estimated to push the average expected effective US tariff on imports from the EBRD regions from 1.8 percent in 2024 to 10.5 percent (based on the 2024 composition of trade and taking exemptions into account, for instance, for energy and pharmaceuticals)

In 2024, effective US import tariffs were highest for Azerbaijan, Türkiye and Moldova. In the case of Azerbaijan, this is primarily due to the export of aluminum, which is already subject to significant duties. The effective tariff is defined as the ratio of the collected import duties to the value of imported goods intended for domestic consumption in the US.

"The analysis points to the largest total effects in the EBRD regions for the Slovak Republic (0.8 percent of GDP), Jordan (0.6 percent) and Hungary (0.4 percent). The overall impact on Germany is estimated to be around 0.5 percent of GDP. The overall impact on China is estimated to be around 2.5 percent.

For the Slovak Republic and Hungary, exports to the US (primarily cars, car parts, batteries, and in the case of Hungary electronics) account for 3 to 4 percent of GDP, though the US only accounts for around 4 percent of total exports. For car and battery exports, the US accounts for around 7 to 12 percent of total exports, similar to the exposure for the car industry in Germany. Previously announced tariffs on cars account for 83 percent of the estimated overall effect of tariffs on the Slovak Republic’s output and 41 percent of the effect on Hungary. The impact of the tariffs would exacerbate broader challenges faced by the car industry, where employment has been already declining and global car production has been shifting towards Asia," reads the update.

In terms of car and battery exports, the US share is approximately 7-12% of total exports, which is comparable to the level of dependence of the German automotive industry.

"The overall impact on Germany is estimated to be around 0.5 percent of GDP. The overall impact on China is estimated to be around 2.5 percent. In this scenario, around 13 percent of its exports to the US would remain (equivalent to 0.4 percent of China’s GDP). In addition to aluminium, steel and car exports (together accounting for over half of the remaining 13 percent of exports, almost entirely driven by aluminium), these are goods that are highly inelastic to tariffs including, for instance, seats, brooms and mops, and headgear. While it remains unclear which tariffs would apply to China’s car exports, even assuming 125 percent tariffs, the impact of car tariffs would be negligible (around 0.01 per cent of China’s GDP).

Exemptions for smartphones and computers from the 10 percent tariff increase would have the largest mitigating impact in the EBRD regions for Czechia, Estonia, Hungary and Latvia, but they would only reduce the GDP impact by around 0.02 percentage points on average. For China, these exemptions would reduce the overall impact from 2.5 to 2 percent of GDP."

"Jordan has historically had close links to the US including a free-trade agreement (FTA) signed in 2000 and in force since end-2001, granting duty-free status to nearly all Jordanian exports to the US. Rules of origin condition duty-free entry of goods on a minimum Jordanian content of 35 percent. The FTA supported the textile industry, with US firms such as Walmart and Target establishing factories in Jordan. Exports to the US (mostly jewellery and garments) are high both as a share of GDP (5.7 percent) and as a share of all exports (around 23 percent), resulting in a trade surplus of 2.4 percent of GDP with the US. Its next largest trading partners, India and Saudi Arabia only account for around 14 and 11.5 per cent of exports respectively. For textiles and jewellery, the US accounts for 81 and 97 percent of total exports respectively - comparable to the exposures for car production in Mexico and Canada’s oil. This exposure is exacerbated by high dependence on US foreign assistance (3.4 percent of GDP in 2023) and a difficult external environment with wars in Gaza and Lebanon weighing on business and consumer confidence," reads the update.

"In sub-Saharan Africa, potential effects would be largest in Côte d’Ivoire (exporting cocoa to the US) and Senegal (mostly textiles). Beyond the potential direct economic impact of tariffs, economies in sub-Saharan Africa face the risk of a possible suspension of the African Growth and Opportunity Act (AGOA). Enacted in 2000, it has given over 30 African economies (including Benin, Côte d’Ivoire, Ghana, Kenya, Nigeria and Senegal) tariff and quota-free access to the US market. Unless renewed, the law underpinning AGOA will expire in September 2025."

"The estimates above are derived from a detailed breakdown of exports to the US and do not take into account spillovers through value chains or redirection of trade. For instance, in the estimates above, the Slovak Republic is assumed to feel the entire negative impact of fewer cars exported to the US without netting out potentially reduced imports of car components from other countries. In contrast, the direct effect for Kazakhstan is small given the exemption for energy. At the same time, indirect effects may be larger if global demand for energy softens and prices fall.

Changes in relative tariffs could also result in shifts in US demand from foreign producers facing higher tariffs to foreign producers facing lower tariffs. For instance, while facing headwinds from higher tariffs on its exports to the US, Jordan could at the same time benefit from a greater differential between tariffs applied on imports from Jordan and imports from China in the US market. Currently around 30 percent of US textile demand is met by China (and another 30 percent by domestic producers) while Jordan currently accounts for less than 1 percent of the US textile market," the EBRD noted.