Tassos Yiasemides: Trump's tariffs, the consequences on the global economy and the most extreme scenario for Cyprus

Cyprus' direct or triangular trade relations with the US, imports and exports, are not of such a size and type that there could be direct negative consequences from the policies of the new US President, states economist and Board Member at KPMG Cyprus Tassos J. Yiasemides suggests.

He had been invited by InBusinessNews to analyse the possible implications of the new tariffs imposed by Donald Trump forCyprus.

However, Yiasemides also indicates that, as a member country of Europe and the Eurozone, Cyprus is expected to be affected by potential negative developments, explaining in this regard that the cost of purchasing and transporting some products and raw materials to Cyprus may increase, fueling a new wave of price increases.

While in a more extreme scenario, according to the expert, the import of specific products may become unprofitable.

Tassos Yiasemides points out that the imposition of tariffs will lead to complex consequences, which are very difficult to assess, explaining that tariffs in themselves constitute a brake on global trade and create serious issues in the supply chain.

"At the same time, it is estimated that the growth of the global economy is expected to be affected, while stock markets are already being negatively affected by the uncertainty that is being created," he points out.

What does the increase in tariffs and the new US tax policy mean for the global economy?

Mr. Trump's idea is to push as much of the production process of products sold in the US within the country as possible, reduce imports and consolidate its economic dominance on the global economic map, while at the same time highlighting the dollar as the main currency for processing global transactions.

To this end, the US is proceeding with the granting of tax incentives for those businesses that decide to settle in the US or transfer part of their production process there, at the same time as imposing tariffs on imported products.

For example, there are automobile manufacturers that, taking advantage of low costs, produce cars intended for the US market in Mexico.

Of course, for the success of the above ideas, such a production dynamic must be created within the US that can replace a large part of imports and ensure the availability of raw materials at reasonable prices.

At the same time, however, it is estimated that there will be a decrease in US exports, taking into account what happened in 1930, when the US government proceeded with a broad imposition of tariffs, at which point trade relations with export partners would have to be ensured.

As can be seen, these are not issues that can be solved with a tariff order. In the short term, at least, the imposition of tariffs will have negative consequences for the US economy.

Product prices and production costs will increase, fueling inflation and making the daily lives of citizens more difficult.

At the same time, it is estimated that the growth of the global economy is expected to be impacted, while stock markets are already being negatively affected by the uncertainty that is being created.

There is often a geographical interconnection in the production of the final product, meaning that part of it is produced in one country, part of it in another, and the final product is assembled in a third.

Therefore, the imposition of tariffs will lead to complex consequences that are very difficult to assess. Tariffs themselves are a brake on global trade and create serious issues in the supply chain.

What is the new policies’ impact on the Cypriot economy?

Direct or triangular trade relations with the US, imports and exports, are not of such a size and type that there could be direct negative consequences from the policies of the new US President.

However, Cyprus, as a member country of Europe and the Eurozone, is expected to be affected by potential negative developments.

Europe will find itself in the middle, without a substantial role, in the processes for the potential Trump-Putin meeting and the discussions on Ukraine, as well as developments regarding US-China relations, which may affect it.

It is expected that there will be, for example, negative consequences in the event that the US asks Europe to impose tariffs on Chinese products or vice versa in the event that China loses some of its exports to the US and tries to replace them with more in Europe.

A common feature of the US and China is their opposition to implementing meaningful environmental protection policies, unlike, for example, Europe. This has led to a new round of discussions regarding the green transition.

Ultimately, clean energy may reduce costs, but converting industries and ships to comply with the directives involves such a high cost that in the short term the products produced will not be competitive.

Furthermore, the economies of the countries, especially the industrial ones, that constitute the core of the Eurozone are experiencing economic stagnation, so tariffs are expected to reinforce recessionary pressures.

This, combined with a possible "resurgence" of inflation, will be taken into account by the ECB in decisions on further quantitative easing, decisions that affect all borrowers.

At the same time, it appears that the FED and the ECB are setting separate courses, with the former not proceeding with a reduction in interest rates during the last meeting of its Governing Council.

As a result, the dollar strengthens against the euro, making imports more expensive and exports cheaper.

In addition, the cost of purchasing and transporting some products and raw materials to Cyprus may increase, fueling a new wave of price increases, while in a more extreme scenario, the import of specific products may become unprofitable.

(Source: InBusinessNews)