Tassos J. Yiasemides: Cyprus' exports to the US are limited, but vigilance is required

If the main economies of the EU are hit by the tariffs announced by US President Donald Trump due to reduced exports, economic instability could affect the European market as a whole, including Cyprus, economist Tassos J. Yiasemides has said.

Speaking to the Cyprus News Agency (CNA), the Board Member and Head of Global Compliance Management Services, at KPMG Limited added that "economic instability and volatility will lead to a postponement of investments, which will also affect our country as an external economy."

"Cyprus' exports may be limited with regard to the US, but vigilance is required to evaluate the external environment and ensure the import of new products, with our country being part of new agreements," Yiasemides stressed.

The expert, who expects an increase in prices and inflationary pressures in the US, said that "Europe and especially its core, Germany and France, are facing serious economic problems with increases in production costs, reduced exports and zero growth rate" and warned that "tariffs will certainly lead to a further reduction in exports and economic growth."

"As a member of the European Union, the Cypriot economy is closely linked to major European markets and is influenced by decisions made by the EU," he noted.

He also mentioned that negative developments regarding the course of the European economy will limit the disposable income of citizens, who will likely limit travel and other habits.

Asked by CNA to comment on the possible effects on the global economy of the imposition of customs tariffs by the US President, Yiasemides said that "the tariffs announced by Mr. Trump are greater in scope and intensity than expected, provoking reactions from stakeholders and leaders of other countries."

He added, however, that "the full impact of Trump's announcements is difficult to assess at this time since we will have to wait to see the reactions of other countries."

"Many leaders have referred to the need for dialogue, so that there may be differences," he said, adding that "tariffs are a brake on international trade and lead to 'deglobalisation'."

He also noted that the financial markets had reacted negatively, falling as investors estimate that the imposition of tariffs will significantly affect global trade and economic activity.

According to Yiasemides, by imposing tariffs, Trump aims to force companies that sell products in the US to move their production units to the country, and not to lower-cost jurisdictions.

In addition, he said that Trump wants to boost American companies, production and employment, even offering tax breaks, adding, however, that “especially for heavy industry products, considering the geographical interconnectedness of production, it is very difficult to replace imports with domestic products in the US, at least in the short term.”

"So the immediate development expected is price increases and inflationary pressures in the USA," he emphasised.

The economist also said that "we may also see partial 1930s scenarios where anti-tariffs led to a restriction of US exports and a limitation of growth."

"We must not forget that the US has a negative trade balance with the EU in goods, but a positive one in services," he added.

In this scenario, according to Yiasemides, the FED will have to balance between inflationary pressures and limiting growth, influencing its monetary policy.

"However, Mr. Trump is a proponent of lowering interest rates in order to limit the cost of servicing the country's public debt, a large part of which is held by Chinese interests," he added.

Yiasemides also said that disruption to global trade flows due to tariffs could affect maritime transport and demand for shipping services.

"It is possible that with the imposition of tariffs, the import of some products will be unprofitable, while on the other hand we will see a rearrangement of international trade, with new interstate agreements and collaborations, as we saw with the start of the war in Ukraine and Russia moving economically eastward," he added.

Finally, Yiasemides told CNA that it should be clarified "whether the comparative table on which the decisions on tariffs were based concerns only tariffs or also VAT (a different mechanism), since the US President has repeatedly referred to the imposition of VAT by the EU on imports."

Also read: "It's our declaration of economic independence," Trump says announcing reciprocal tariffs