Emerging Europe – Trapped
- 19 September 2024 (3 min read)
Potential ricochet from US protectionism
Protectionist temptations will be closely watched after the US election, again separating a Harris/Trump outcome. Central and Eastern European (CEE) countries rank very highly in terms of trade openness. In 2023, trade (exports and imports) accounted for as much as 175% of GDP in Slovakia and close to Singapore levels of 100%-120% for the Baltics. Among the bigger economies in the region, Poland’s trade is still more than 90% of GDP, compared to only 25%-40% of GDP in China, India, Indonesia, Brazil or Russia. The European Union (EU) is by far the CEE’s largest trading partner, accounting for 60%-80% of total exports, while the 3%-5% export share to the US is still above China’s 1%. But a further rise in US protectionism could affect the region indirectly via the effect on the Eurozone economy and the euro, rather than directly or via its impact on China.
Nervous neighbours
Yet beyond trade concerns, a second mandate for Donald Trump brings risks to financial and military assistance in the region. It remains to be seen whether Trump would end US aid to Ukraine if elected as part of a “settlement in a day”. Still, it appears increasingly clear that Ukraine and the whole CEE region would have to rely more on Europe – and itself – for security. Most of these countries perceive Russia’s Ukraine invasion as an existential threat and have stepped up defence spending by 100%-270% since 2014. The national military budget reached 4% of GDP in Poland, while Latvia aims to reach 3% of GDP by 2027 and most CEE countries exceed the North Atlantic Treaty Organization (NATO) 2% of GDP pledge, a level that Trump has suggested could grant US protection “from a Russian invasion”. However, Trump is also supported by populist leaders such as in Hungary and Slovakia, whose pro-Moscow tilt continues to stir frictions within the EU. However, these economies also seem to be a gateway for Chinese investments into the EU, which in turn could bring trade tensions with the EU and US alike.
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