Topic:Blog
Date:15. May 2025
Author:Marek Tiits

Marek Tiits: The New Trade Order and Its Impact on Estonia

The European Union considers it important to maintain strong relations with the United States, given the close economic ties and shared strategic interests. At the same time, Europe is facing deepening dependence on China, particularly in critical technology sectors, writes Marek Tiits.

On April 9, U.S. President Donald Trump announced the suspension of new import tariffs that would have affected all major U.S. trading partners, including the European Union. The continuation of the previously applied tariff regime for at least another 90 days gives the European economy a short-term breathing space. At the same time, the raising of tariffs on goods from China to 125 percent and China’s retaliatory tariffs indicate that trade relations between the U.S. and China are rapidly deteriorating.

Immediate impact on Europe and Estonia

The so-called Freedom Day tariffs would have delivered a significant blow to European companies. It is estimated that the European Union’s exports would have declined by up to 85 billion euros.

The automotive and pharmaceutical industries would have been hit the hardest, as well as the machinery and equipment industry and the chemical and cosmetics sectors. These sectors are closely linked to the U.S. market, and price increases would have led to a loss of market share in America. For the European economy, this would have meant a short-term slowdown in growth, with GDP expected to fall by 0.3 to 0.5 percentage points already in the first year.

Estonia’s direct exports to the United States are relatively modest, accounting for about four percent of goods exports. The main export articles are telecommunications and measuring devices, precision instruments, and refined petroleum products. However, given the close integration of Estonian companies into European supply chains, the indirect effects of trade tensions between the U.S. and the European Union could be significant.

The temporary pause provides some time to adapt, but the structural weaknesses of Europe’s and Estonia’s foreign trade require urgent attention.

The three centers of world trade

World trade is based on three major centers: Europe, with Germany at its core; North America, led by the U.S.; and Asia, dominated by China. Other countries, including Estonia, direct their trade flows toward these centers.

The total volume of global trade amounts to approximately 22 trillion euros. In 2024, the European Union exported goods worth 532 billion euros to the United States and imported goods worth 333 billion euros from there, resulting in a trade surplus of about 200 billion euros in favor of the EU.

In comparison, the European Union imported goods worth about 514 billion euros from China and exported goods worth about 223 billion euros to China, resulting in a trade deficit with China of approximately 291 billion euros.

A large part of global trade is intra-bloc trade. For example, nearly 70 percent of Europe’s exports go to other European countries. If relations between the main trade centers deteriorate, intra-regional trade within these blocs is likely to grow even further. Both large and small countries must adjust their strategies accordingly.

Europe’s competitiveness

Europe is facing increasing global political and economic uncertainty. This requires balanced and forward-looking action. Developments regarding the “Freedom Day” tariffs, as well as the ongoing trade conflict between the U.S. and China, remain unpredictable, but their impact reaches deep into global supply chains.

For the European Union, it is important to maintain strong relations with the United States, considering the close economic ties and shared strategic interests. At the same time, Europe is facing increasing dependence on China, particularly in critical technology sectors.

In this context, it should not be forgotten that alongside the trade conflict, there is an ongoing technological and economic race between Europe, the U.S., and China. A significant portion of Europe’s electronic components and devices come from China. Additionally, Europe is heavily reliant on green technology products from China, ranging from solar panels and wind turbines to batteries for electric vehicles.

China’s dominant role in the production of these products means that any political tension or logistics disruption can quickly turn into an economic risk. To prevent this, Europe must decisively reduce its dependence on single suppliers and diversify its markets and supply chains. “Diversifying supply chains and increasing supply security is no longer a choice but has become an unavoidable necessity.”

Looking ahead, it is important to consider several geopolitical and economic development scenarios. Above all, if the economic conflict between the U.S. and China intensifies, there will be increased pressure to reorganize supply chains. In such a case, Europe must find new suppliers and develop its self-sufficiency. Diversifying supply chains and increasing supply security is no longer a choice but has become an unavoidable necessity.

Recommendations for Estonian exporters and export promoters

Although the U.S. pause in imposing tariffs on the rest of the world offers some relief, the outlook for world trade remains uncertain in the coming years. Estonia will cope better if we manage to diversify our markets, strengthen ties with the European core, and invest wisely in innovation.

In such a situation, Estonia should:

Countries’ competitiveness in green technology exports. Note: Balassa RCA index. The greener, the more competitive the country is in green technology exports. Source: IMF 2024, Policy Lab 2024

First published on ERR portal on April 11.

Editor: Kaupo Meiel

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