The trade dispute between the United States and the European Union is leaving its mark: EU countries exported 30.4% fewer goods to the US in the first quarter compared to the same period last year.
Nevertheless, the US remained the most important export destination for the EU, accounting for 18.6% (€119.4 billion) of all exports to the US between January and March of this year, according to Eurostat data.
Exports to other countries also declined. Exports to Turkey fell by 8.2% and to China by 7.9%. Overall, the EU exported goods worth €640.5 billion to non-EU countries. Compared to the same quarter of the previous year, this represents a decrease of 8.8%.
Not only exports but also imports into the EU fell in the first quarter of the year. Goods worth €627.8 billion were imported (a decrease of 3.3%).
With a share of 23.1% of total imports, China was the EU's largest supplier, with products worth €145.3 billion. It was followed by the US, the UK, Switzerland, and Turkey.
The dispute with the US
A tariff dispute has been simmering between the US and the European Union for over a year, despite the controversial tariff agreement last summer between President Trump and European Commission President Ursula von der Leyen: the EU had to accept tariffs of up to 15% on most exports of goods to the US and make further concessions, such as removing EU tariffs on US industrial products.
Just last week, after a Trump ultimatum, the EU paved the way for the full implementation of the tariff agreement, allowing the EU to avert an impending trade war.
Energy crisis
At the same time, the energy crisis puts Europe in a difficult position, threatening the EU with stagflation.
The Strait of Hormuz has been blocked for three months, and even if Iran backs down, it will take months for hydrocarbon flow from the Gulf to return to normal.
"Uncertainty is likely to remain high, hindering household and business planning and limiting consumption and investment," emphasize market factors. "It is difficult to determine how long the hostilities will last and how stable the subsequent situation will be. In any case, damage to energy infrastructure will continue to affect supply," they add.
Transport and insurance costs for navigation in the Strait of Hormuz will remain high for a long time.
Shipowners
"Everyone, starting with shipowners, has now realized how dangerous the Persian Gulf route has become, and the Strait of Hormuz will remain a threat even when it opens," shipping sector sources tell Naftemporiki.
Many have already chosen alternative routes, either via the Suez Canal—which, however, is already overcrowded and constantly threatened by Iran-backed Yemen's Houthi rebels—or sending their ships around Africa. In both cases, travel times are longer and costs higher.
"But this means an almost permanent inflationary threat to the European economy," they add.
Today, the supply crisis, with the blockage of the Strait of Hormuz, is potentially structural and, in any case, many times greater than what happened both during the Covid pandemic and after the Russian invasion of Ukraine.
What will the ECB do?
Can this inflationary pressure be contained at its inception?
The ECB will meet on June 11, and the market is waiting to see its reaction.
All analysts expect the first interest rate hike in a year—by 25 basis points to 2.25%.
In any case, however, the classic dilemma remains: an attempt to curb inflation by raising interest rates and the cost of money, which would hit already sluggish growth?
"Stagflation is no longer a standard hypothesis," warn market factors. "And the combination of stagnation and high inflation creates a contradiction that paralyzes the Central Bank and makes monetary policy an enemy of prices and employment."
The hard part begins now
In any case, for the European Union, the emerging situation means more difficult economic conditions and less growth, with all that implies for household living standards and business operations.
The prospect of rising inflation brings energy policy back into focus as an antidote. This is why it becomes even more urgent to address the causes of inflation, and therefore the energy crisis and the collapse of supply chains. "There can be no increase in production capacity in Europe if energy costs are too high."
Escalation of tensions with Moscow
In this regard, the deterioration of tensions with Russia is bad news.
In March, Europe bought more liquefied gas from Moscow than in previous months.
The UK decided to lift sanctions on imports of refined products, gasoline, diesel, and jet fuel produced abroad with Russian oil.
London now allows British companies to support Russian gas deliveries.
The United States has also taken similar decisions.
However, cheap Russian energy is partly the reason we managed to contain an energy crisis that is potentially unprecedented in history. The other reason is the high level of release from US strategic reserves, but that will not be sustainable for another two or three months. Once US reserves are exhausted, it is unclear whether America will continue to support its allies.
Fragmented domestic market
In this adverse context—unlike their competitors in the US and China—European companies face a fragmented domestic market for goods and services, even though the single market was supposed to have been completed more than 30 years ago. Different laws, regulations, and approval requirements cause high costs and hinder rapid expansion.
The lack of a true capital markets union is particularly harmful for startups that have already survived their initial market phase and now need to grow to become profitable. "This 'valley of death' phase exists everywhere, but it is worse in Europe," say market factors.
The path to greater European competitiveness and thus to more jobs and prosperity across the EU is strewn with … thorns. "We know what we need to do — we just don't know how we could get re-elected after doing it," was a famous saying of former European Commission President Jean-Claude Juncker. It still aptly describes the dilemma of European economic policy.
