Trump is waging a trade war – what does this mean for Malta?

No country is too small to feel the effects of Donald Trump’s presidency. Malta, along with its EU counterparts, is certainly feeling the heat on security and defence matters after Trump paused humanitarian aid and intelligence-sharing with Ukraine. In response, 26 EU member states – excluding Hungary – agreed to continue supporting Ukraine, while all 27 agreed to boost defence spending, leaving Brussels with a collective commitment to increase military funding.

But while EU leaders scramble to find a solution to the war in Ukraine, especially as tensions with America rise, another American threat looms on the horizon.

Last month, Trump made it clear that he plans to impose tariffs of 25% on goods made in the European Union. He said the bloc was formed “to screw the United States […] and they’ve done a good job of it”.

EU chief Ursula von der Leyen said that US tariffs will not go unanswered. Spanish Prime Minister Pedro Sanchez stated that the bloc will defend its interests. European Parliament President Roberta Metsola also weighed in, saying the EU will react firmly and immediately to any tariffs.

Trump has already imposed tariffs on imports from Mexico and Canada and recently doubled the levy placed on Chinese goods. However, the tariffs on Mexican and Canadian goods covered by the North American trade agreement are already being put on hold until 2 April. Still, the tariff increases and uncertainty around Trump’s decisions mean the EU could very well be the next player in the American trade war.

JP Fabri, an economist, told MaltaToday that a 25% tariff on EU-made goods would have direct and indirect consequences on the Maltese economy. Malta does not export large volumes of goods to the US, but industries like pharmaceuticals and high-end manufacturing, as well as niche sectors like luxury goods and maritime services, could face challenges if supply chains are disrupted or if European companies struggle to maintain access to the American market.

JP Fabri

“The broader concern for Malta lies in the impact such tariffs would have on the European economy,” he said. “Since Malta is closely tied to EU trade, any slowdown in European growth due to reduced exports to the US would be felt across various sectors. A decline in European manufacturing output or a loss of competitiveness for EU companies could weaken economic sentiment, potentially leading to lower investment levels and slower job creation in Malta.”

Philip von Brockdorff, an economics professor, explained that US tariffs on EU goods would primarily affect the export prices of aluminium, steel, cars, and food produced by European companies. As these goods become more expensive, exports to the US market will reduce. However, this does not mean that European consumers will avoid the burden.

“[Tariffs] could hit EU economies hard, with European consumers also having to pay higher prices for European products as companies adjust because of their losses in exports. This will inevitably affect consumers in our economy who purchase, for example, cars manufactured in Europe. However, it’s not just car prices that could be impacted. We also rely heavily on European food products, and any US tariff on food sold to the US will raise export prices, and again, any losses in exports would lead to upward price adjustments in Europe,” he said.

Hesitation in company boardrooms

Von Brockdorff added that this is happening at a time when energy prices remain high, with the Trump administration contributing to geopolitical uncertainty and tensions between Europe and Russia escalating. All of these factors could cause hesitation in company boardrooms when deciding whether to invest.

Philip von Brockdorff

Fabri agreed that tariffs of this scale could lead to broader economic uncertainty, making businesses more cautious about expansion and spending. “Foreign investment, which is an essential driver of Malta’s economy, could also be affected if companies perceive heightened risks in doing business within the EU.”

Another cornerstone of the Maltese economy could also be impacted: tourism. Fabri explained that an EU-US trade war could weaken consumer confidence and disposable income levels across Europe, which could lead to a decline in tourism spending. “Given Malta’s reliance on European visitors, any slowdown in European economic activity could affect the hospitality sector, retail, and related industries.”

So far, a US tariff on EU goods is a hypothetical situation, although extremely possible. This does not mean that Malta is off the hook. The US tariffs being imposed on Mexico, China, and Canada will still have an effect on global trade, leaving Malta exposed.

Fabri explained that Malta, being a small and open economy relying on trade and global supply chains, is highly sensitive to shifts in international trade policy, and one of the more immediate effects of these tariffs will come through supply chain disruptions.

“Many Maltese businesses, particularly those involved in manufacturing, pharmaceuticals, and high-value exports, rely on components and raw materials from global suppliers, including China. Any increase in costs due to tariffs on these imports can translate into higher production expenses for local firms, reducing competitiveness,” he said.

There is no doubt that tariffs will drive up costs for businesses in Europe and beyond. Fabri pointed out that, as a result of increased costs, consumers and companies in Malta could expect to see higher prices for imported goods, particularly those that originate from China or contain Chinese components. “This inflationary pressure could affect purchasing power and business costs alike,” he said.

Global uncertainty

Von Brockdorff pointed out that, beyond the direct or indirect effects of US tariffs on Mexican, Canadian, and Chinese goods, these measures create economic uncertainty globally, which could have an effect on the eurozone economy. Chinese firms might seek alternative markets, including the European market, to sell their products by lowering export prices and competing aggressively with European producers.

“Other than creating economic uncertainty leading to more sluggish economic growth in the Eurozone, I can’t see any direct impacts on our economy,” he said.

Fabri added that global economic uncertainty leads to financial market volatility. “Given that Malta has a strong financial services sector and is closely integrated with European and international markets, fluctuations in investor confidence can have ripple effects on investment flows and economic growth.”

“Additionally, as part of the EU, Malta’s economy is deeply tied to the broader EU market. If tariffs dampen European economic activity by reducing exports to key trading partners, the slowdown could indirectly affect Malta through lower demand for goods and services, investment shifts, and reduced tourism flows,” Fabri said.