site.btaNew EU-US Trade Deal Likely to Have Negligible Macroeconomic Impact on Bulgaria, Think-Tank Predicts

The most recent trade deal between the European Union and the United States drew negative reactions in Europe. The predominant view on this side of the Atlantic is that the agreement is a defeat, although it was probably the best option. Looking at the potential effects on Bulgaria, the natural focus is on the export of Bulgarian goods to the US, which amounted to EUR 1.09 billion in 2023. This indicator does not necessarily provide the most accurate picture of Sofia’s trade relations with Washington. To begin with, Bulgarian companies export not only goods to the US but also services; second, the indicator does not include indirect exports via third countries (EU members or other), which would also suffer from rising tariffs; and third, and perhaps more important, we cannot fully appreciate the export level unless we know how much added value generated in Bulgaria has gone into it, Institute for Market Economics (IME) junior researcher Teodor Nedev says in an analysis published on the IME website on August 8.

In 2023, exports of goods from Bulgaria to the US, either direct or via other economies, generated EUR 830 million in added value for Bulgaria, Nedev says. It was just 1% of total added value created in the Bulgarian economy over the year. Given this low share, and assuming that a 15% tariff will not ruin Bulgarian exports to the US completely, the direct and indirect effects of the new trade situation on Bulgaria’s economic growth are likely to be negligible at the macroeconomic level, the expert predicts.

Exports of services from Bulgaria to the US (direct and indirect) make a tangibly greater difference to this country’s economy than exports of goods, the analysis goes. Exports of services generated EUR 1.94 billion in added value in 2023. And the level has been rising – both as a share of the added value from exports to the US (from 62% in 2010 to 70% in 2023) and as a percentage of the total added value created in the Bulgarian economy (from under 1% in 2010 to 2.3% in 2023). It is also noteworthy that economic activities which export services to the US employ more people than those which export goods. The number of employees engaged in service-exporting activities has grown considerably, from 11,000 in 2010 to 38,000 in 2023. By comparison, employees engaged in economic activities which export goods to the US numbered 25,000 in 2023, increasing from 14,500 in 2010. The services sector, which is not targeted by Washington’s new trade restrictions, clearly plays a leading – and steadily growing – role in terms of added value and employment in the Bulgarian economy.

The situation is not very different in most other EU member states, the IME researcher says. Although the United States is the largest external market for EU goods, with direct exports totalling EUR 504 billion in 2023, the added value generated by the EU economy from direct and indirect exports to the US was EUR 248 billion in that year, accounting for 1.6% of total added value in the bloc. Even in Germany, which is often described as particularly vulnerable to tariff increases, the share is only 1.8%. In fact, the EU countries which create a particularly high percentage of their added value by exporting to the US and are therefore most at-risk due to the new restrictions, are Ireland, where many leading US companies are registered, and Denmark, which is a major supplier of medicines to the US.

The higher import tariffs imposed by Washington are definitely not good news for the EU and Bulgaria since the US is an important market for the export-oriented European economy, the IME analyst admits. Generally speaking, he says, world trade is a key driver of growth, productivity and innovation. On the other hand, trade with the US should be viewed in a context. Exports of goods to the US may be large in nominal terms, but the added value from them is a very small share of the total added value generated for the EU, including Bulgaria. Therefore, instead of indulging in catastrophic forecasts and self-pity, politicians should go back to the big questions of how to boost Europe’s competitiveness, entrepreneurship and growth. A 15% tariff will hardly kill the consumption of European goods across the Atlantic completely, but it provides an occasion for the EU, including Bulgaria, to look to new markets, the analysis concludes.