Petr Bartoň, a lecturer in economics at Anglo-American University and chief economist at Natland Investment Group, recently published an article in the Czech online newspaper Echo24.cz analyzing the global effects of tariff policies introduced during the administration of former U.S. President Donald Trump. The article outlines how tariffs can influence consumer prices, production costs, and trade flows beyond national borders. Drawing on economic principles and recent developments, Bartoň examines how these measures may affect markets in regions such as the European Union, with attention to both direct and indirect consequences. The full translation is provided below.

Petr Bartoň

Key Takeaways:

However, saying “tariffs are bad” doesn’t mean that once a tariff has been put in place, it can’t ever have a positive effect for someone. Economics is rarely black and white—almost nothing has exclusively negative or exclusively positive effects for everyone. (For example, if a currency strengthens, importers benefit but exporters take a hit.) Admitting that there can be some local “silver lining” in an otherwise harmful tariff is not a defense of tariffs; it’s simply applying economic principles to a given situation. Next year marks the 250th anniversary of economics as a formal discipline (dating from the first publication of Adam Smith’s The Wealth of Nations, a kind of “bible” for economists). What follows is an economist’s perspective on Donald Trump’s tariffs and the consequences they might have.

For many non-economists, this is probably the biggest surprise. They assume that since economists say tariffs are bad, it automatically means higher prices everywhere. But that’s not quite how it works. If global goods face new barriers on their way into the U.S., some of those goods won’t make it there (it becomes unprofitable), so producers will look for other markets—like the European Union. The EU is somewhat comparable to the U.S. market in size and purchasing power. Yes, the EU has its own certification hurdles for imports, but those can be overcome. And once a product is certified for the EU market, the importer can ship greater volume more freely—thus potentially pushing down prices on that item in Europe.

This price-lowering effect isn’t purely theoretical. We have real-world data. When Trump imposed tariffs on Chinese steel during his first term, steel got cheaper in the EU. Now, with new tariffs on not only Chinese steel but also on Canadian and Mexican steel—where U.S. demand had been far higher than for Chinese products—this effect may be even stronger. This comes at a time when Europe could actually use more steel than usual, so cheaper steel is a welcome relief. The EU is still undecided whether it’ll prioritize the “Green Deal” or boost defense spending (as though doing both without worrying about where the money comes from were easy). Whichever path the EU takes, it will need steel—whether for new green technologies or defense. It’s a detail that’s sometimes overlooked: going green still requires a lot of steel.

Falling prices for global goods that no longer go to the U.S. will mainly benefit importers. Not all of us are importers, right? Sure, many of us order small consumer items from places like China—so we do import in a small way. But we also buy global brands on the local market from importers, so the key question is how competitive those importers are in passing cost savings along to us. On top of that, most major central banks operate under an assumption of permanent, necessary inflation: they have a near-phobic fear of prices dropping—what they call the “deflationary spiral”—and they do everything to avoid it, aiming for a steady inflation rate of about 2% a year. So sometimes, instead of actual price cuts, we might just see slower price increases, or what economists call “disinflation.”

The flip side of cheaper goods potentially appearing in the EU is that goods in the U.S. will become more expensive. Here’s what a tariff actually is: it’s primarily a tax on the importing businesses in the country that imposes it. The importer pays that tax at the port. Thus, they bear higher costs, which they typically pass on to their customers, depending on the level of competition in the sector. This isn’t just theory, either. Vehicle prices in the U.S. started climbing as soon as the White House announced tariffs on foreign cars, even before the tariffs took effect. Folks who wanted an imported car tried to buy quickly to avoid the extra cost, driving up prices. Those who didn’t care about the car’s origin still saw imported models going up in price, so they shifted to American-made cars, also pushing up their prices. American production can’t expand that quickly—no matter what dreams are circulating in Washington. And even homegrown manufacturing costs will go up, since about 60% of U.S. imports are raw materials or parts for further production.

When you hear about Donald Trump’s “counter-tariffs,” they’re a response to what he sees as higher EU tariffs on American goods. (The President’s formula for determining unfair tariffs is questionable, but that’s another story.) If we do see prices go up in the EU, it won’t be because of Trump’s tariffs—it’ll be if the EU decides to retaliate with its own tariffs. Nothing in economic theory says that fighting tariffs with more tariffs is a good idea. If anything, economics suggests it could make the situation worse: it effectively punishes consumers in the EU with higher prices. The EU often complains that the U.S. “doesn’t want to talk,” but the Union could unilaterally lower its tariffs to match the American level if it really wanted to. That’s basically what happened with Canada and Mexico, where an agreement was reached only after tariffs were imposed.

No economist can definitively say the EU wants to jack up tariffs; we lack insider info. We can only note that the EU perpetually grapples with budget shortfalls. Right now, it’s even preparing to go into debt for ambitious spending plans, since it’s basically the only “governmental” entity in Europe without existing debt. Meanwhile, three-quarters of customs revenue goes directly to the EU budget, currently about 14% of total EU funding. Because EU tariffs are relatively low on average (even though tariffs on certain dairy products can exceed 40%), the overall intake isn’t high. But if the EU threatened tariffs on U.S. goods, it could mean a nice budget windfall for the EU. Sure, consumers would be hurt by higher prices—but the Union’s budget might get a big boost.

Tariffs aren’t the only kind of import barrier. With tariffs, at least the government coffers collect some revenue (which is also what Trump hopes to do in the U.S.). But there are also “import quotas.” Under quotas, there’s a hard limit on how much of a certain product can enter the EU each year. Once you hit that limit—say, in September—no more can come in until next year. This restriction on quantity pushes up prices, just like tariffs do, but the EU doesn’t collect a dime from it. And yes, we’ve seen examples of this, too. When Trump’s first steel tariffs made steel cheaper in Europe, the EU responded by imposing its own barriers to keep prices higher.

From all these potential outcomes, it’s clear that when European Commission President Ursula von der Leyen said the EU stands ready to protect “its markets, manufacturers, and consumers,” it wasn’t entirely accurate. Consumers can actually benefit from cheaper imports triggered by U.S. tariffs. The ones who stand to lose are: 1) exporters who sell to the U.S. (in countries like the Czech Republic, that might be specialized machinery or measuring instruments), 2) component suppliers for industries like German car manufacturing, and 3) producers who now face cheaper international competition. According to many simulations, the third group is the hardest hit in countries like the Czech Republic. The direct drop in production because of U.S. tariffs on the EU is estimated at a few tenths of a percent of GDP, meaning that if the economy was expected to grow at 2% this year, it might be more like 1.7%. That’s still growth. Only a couple of years back, growth was at zero.

Some doomsday forecasts suggest that if tariffs last three years, the cumulative drop for countries like the Czech Republic could even reach 2% of GDP. But ironically, the bigger effect might come from U.S. tariffs on China, because cheaper Chinese goods might get diverted to Europe, intensifying competition for local producers. The Czech Republic might produce less but see significantly lower prices in shops. Sometimes we forget about that upside when the conversation focuses solely on GDP. And as for worrying about unemployment—it’s at an all-time low anyway, and companies are clamoring for workers they can’t find. The gradual shift away from traditional auto manufacturing to simpler electric vehicles is likely to pose a bigger shock to Central European factories than tariffs on cars sold to the U.S.

There’s another way costs could go up for EU producers, even without any new EU tariffs or quotas: If enough global manufacturers believe these tariffs will last at least a year (which is not guaranteed), they may scale back production. In the short term, they might just stockpile goods in hope tariffs might soon be lifted and demand surges again. But if they truly cut back, the total manufacturing volume shrinks, so the capital and overhead of those factories is spread over fewer units—leading to higher per-unit costs. Think of it like a postal service that used to deliver thousands of letters a day, now delivering just a few dozen, so postage prices shoot up. Global efficiency declines, and so do economies of scale, pushing up prices across the board.

Tariffs can end in three main ways: 1) a collapse of the U.S. economy (though market dips alone don’t equal economic ruin—economies can be surprisingly resilient), 2) action by the World Trade Organization (though the WTO has been hamstrung for years, partially due to U.S. policies), or 3) the U.S. court system. Tariffs are technically set by Congress, not the President, but the current administration invoked emergency powers at the start of its term, citing things like illegal fentanyl imports, to bypass Congress. Sometimes those claims are a stretch. For instance, tariffs on steel from Canada were rationalized on national security grounds. The Senate has already pushed back on the logic behind some of these tariff expansions. Since the White House used such sweeping measures in questionable ways, the courts might strike them down. But these legal battles take time, and tariffs remain in effect until then.

In his “formula” for determining which country to hit with tariffs, Trump didn’t actually measure tariff rates. Instead, he primarily looked at bilateral trade deficits. He’s basically punishing countries for the “audacity” of selling more to the U.S. than they buy, even though the U.S. itself sometimes runs a surplus with other countries. I personally run a “deficit” with my local grocery store but enjoy a “surplus” with my own clients—that’s just how trade works. Across the global economy, one nation’s deficit is another’s surplus. It’s even more bizarre that Trump’s plan focuses on goods trade while ignoring services, where the U.S. is quite strong and nearly balances its trade with Europe.

Trump wants to use tariffs to do two things: bring in revenue for the federal budget (which, like many countries’, is chronically in deficit) and shift more manufacturing to the U.S. But these goals are contradictory. If production does relocate to the U.S., the government won’t collect tariffs (because there’s no more import). If the government keeps collecting tariff revenue, then manufacturers haven’t actually moved back onshore.

Not literally. The “tariffs on penguins” story emerged because some uninhabited islands (Heard Island and McDonald Islands in the southern Indian Ocean) show up in U.S. trade statistics for exporting roughly $1.4 million a year in goods to America. Since they appear in the stats, they got included in the spreadsheet, and thus faced tariffs as well. In this sense, the U.S. is an equal-opportunity customs officer—apparently, even penguins can do business with the U.S…and get smacked with an import tax.

That’s terr-iffs for you: definitely not a good idea, but they do produce some side effects that can ripple through global markets in unexpected ways. And in some comedic twist, it looks like not even arctic birds are safe from them.

The foregoing piece was originally published by Echo24.cz and is reposted here with the author’s permission.