The United States is set to introduce 20% tariffs on European goods, a move that economists say could slow Lithuania’s GDP growth by 0.5%. LRT.lt examines how the move could impact Lithuania’s economy.
Vidmantas Janulevičius, head of the Confederation of Industrialists, told LRT.lt that he had not expected tariffs to be set this high.
“Frankly, we expected 10% tariffs for the EU. Of course, all hope is not lost – [US President] Donald Trump has been known to change his mind. But if the 20% rate is implemented, it will be tough,” he said.
One of the biggest challenges facing Lithuanian and EU manufacturers is that the European market will be flooded with cheaper goods from other countries. This will happen as the US market contracts, putting immense pressure on local producers in the EU.
“With tariffs on China, Japan, and other major exporters that have free trade agreements with the EU, both Lithuania and the EU will face unprecedented pressure to sell goods within the EU, where no tariffs exist.
Competition within the EU will be fierce. We will undoubtedly see cases of price dumping, as companies will struggle to find buyers. China has announced it will cover all US-imposed tariffs on Chinese exports for two years, but the EU does not have the means to implement such measures,” Janulevičius said.
Economy and Innovation Minister Lukas Savickas has proposed a €20 million support package for businesses exporting to the US, but Janulevičius believes this will not be sufficient.
“It may help companies survive temporarily – perhaps for a month or two – but it won’t change the bigger picture. That said, we welcome the initiative to provide immediate assistance to businesses,” he said.
US tariffs at a century-high level
Swedbank’s chief economist, Nerijus Mačiulis, pointed out that Trump’s new tariffs would push the overall US import tax rate to its highest level in a century.
“The average tax burden will rise from around 2.5% to over 20% of the total value of US imports,” he wrote on Facebook.
However, Mačiulis stressed that many questions remain unanswered.
“It is unclear how long these tariffs will remain in place, whether they will be reduced or withdrawn during negotiations, and how the affected countries will respond. It is also uncertain how these developments will impact Trump’s enthusiasm for continuing this approach,” he said.
Mačiulis also highlighted key economic figures – the EU’s exports to the US account for less than 3% of its GDP, while Lithuania’s exports to the US total nearly €2 billion, or about 2.5% of its GDP.
“Our main exports to the US are petroleum products and various chemical goods, including reagents used in pharmaceuticals and vaccines. So far, the US has made exemptions for medicines, energy, wood, semiconductors, and other critical imports. This means that much of Lithuania’s exports could be exempt from tariffs. However, negative effects through supply chains – such as automobile parts manufacturing – could still reduce Lithuania’s GDP by up to 0.5%,” Mačiulis noted.
Despite concerns, he also pointed to some positive trends. Structural changes in the global economy, including Germany and the EU’s fiscal stimulus measures – such as increased investment in defence and infrastructure – could benefit Lithuania.
“These measures will have a positive impact on EU and Lithuanian economic growth, potentially increasing Lithuania’s GDP by up to 0.5%,” he said.
“The key question now is how Trump, his advisers, and especially Republican lawmakers will react to falling stock prices, rising inflation, and the likely onset of a US recession. ‘Liberation Day’ may liberate something – but not necessarily what its architects intended,” Mačiulis added.
Attempts to bring back 19th century
Marius Dubnikovas, vice president of the Lithuanian Business Confederation and an economist, described Trump’s move as an “economic war.”
“Although Trump claimed he would not start any wars, he is now launching what could be the largest economic war since the Great Depression. The outcome is difficult to predict, but it will undoubtedly be negative, as this move will essentially halt trade,” Dubnikovas said.
He explained that the new tariffs would reduce trade volumes, leading to lower company revenues, smaller profits, fewer jobs, and lower wages. As a result, global markets will suffer.
Dubnikovas suggested that the best-case scenario would be for Trump to reverse course, as he has done with some previous decisions.
“This will be a huge shock for Americans themselves, and they may pressure Trump to soften his stance. Could this be the start of global negotiations? Perhaps. If not, and if the US sticks to its position, we will likely see the worst-case scenario – other countries imposing retaliatory tariffs against the US,” he said.
If the EU and other countries impose tit-for-tat measures, global trade would shrink even further, Dubnikovas said.
He also suggested that the US is trying to revert to a 19th-century economic model.
“Trump wants international trade to stop and for factories and production to move back to the US – essentially turning America into a self-sufficient state, like in the 19th century, where everything is made domestically,” he said. “It’s a vision of an isolated country that shuts out migrants and external influences. It might have been feasible in the 19th century, but in the 21st century, we have a global economy. The question is – who is advising him, and why?”
Dubnikovas stressed that the biggest cost of these tariffs would ultimately fall on ordinary Americans.
“The internal pressure will be immense – inflation will start rising immediately,” he predicted.
He warned that price increases in the US would begin as soon as Thursday, affecting even domestically produced goods.
“We are witnessing an unprecedented moment in global economic history. There hasn’t been an experiment like this in nearly 100 years – perhaps not since the 1970s. In essence, this is something straight out of the history books that we will now have to re-learn,” Dubnikovas said.
A gloomy forecast
Economy Minister Savickas stated that US tariffs could reduce Lithuania’s GDP growth by around 0.65% over the next three to four years.
In March, the Lithuanian central bank outlined three possible scenarios for how US tariffs on the EU might impact the economy.
Under the worst-case scenario, in which the US imposes 25% tariffs on Canada, Mexico, and the EU, along with 20% tariffs on China, and those countries retaliate, Lithuania’s GDP
Newsletter
Every Friday morning.
