Trump Tariffs: How They Will Affect the Greek Economy

There is widespread concern in the Greek government -mainly- about the secondary consequences of Trump's tariffs, which are approaching 30% and will be implemented from August 1. One of the key issues is how much both the rise in Greek GDP and inflation will be affected by the general turmoil that such a development brings, if nothing changes by then. The "exposure" of Greek exports to the US may be considered relatively small, as it is in the region of 1%, however, a recessionary situation in Europe is likely to bring downsides to Greek growth.

A relevant study included in the Monetary Report of the Bank of Greece reflects the direct, controlled impact of the tariffs on the Greek economy, due to the limited exports of goods from our country to the US. However, it sounds an alarm bell in relation to the fact that the indirect effects through our trading partners in the EU, which will be significantly pressured, will be significant.

All of this is likely to lead to a slowdown in the growth rate of Greek GDP, notes the Bank of Greece. The size of the impact depends significantly on the intensity of the disturbances in external demand and uncertainty. Especially in the worst-case scenario where uncertainty takes on a leading role, the effects on economic activity are expected to be significant.

The reduction in GDP
The Bank of Greece describes in detail the chain reaction that Trump's tariffs and especially the increased uncertainty in international trade may cause.

As it turns out, the decline in external demand leads to a reduction in Greek exports, causing a contraction in aggregate demand in the Greek economy.

As external demand weakens, businesses reduce production, which implies a decrease in real GDP.

The decline in production, in turn, reduces labor demand, exerting downward pressure on private sector wages and labor costs, as well as on the demand for capital.

Rising inflation and falling incomes
At the same time, the decline in aggregate demand leads to a fall in inflation, as businesses reduce their prices in response to lower labor costs.

In addition, the decline in household income leads to a fall in private consumption, further exacerbating the contraction in aggregate demand.

As for the effects of increased economic uncertainty, it negatively affects investment and consumer demand. In turn, the decrease in domestic demand leads to a reduction in employment and wages, which allows businesses to reduce their prices, creating deflationary pressures.

Another risk from Trump's tariffs is related to tourism issues, since many EU countries will be affected by a generalized trade war. The reason is as follows: If European countries experience a loss of income due to tariffs, then this may affect Greek tourism, which expects a lot from European citizens.

The blow to exports
At the same time, as ELSTAT points out, a significant percentage of the Greek economy's exports, approximately 50%, are services (ELSTAT data) and the imposition of US tariffs only concerns goods. In addition, the US is not a significant destination for Greek exports of goods, as in recent years (2020-2024) it has absorbed only 4.1% of exports of goods.

Without a doubt, Trump's decision to impose horizontal tariffs of 30% on all European products from August 1st is a strong blow to Greek export activity, as also shown by the official statements of Greek businessmen.

This specific move is estimated to pose serious challenges both for Greek entrepreneurship, "hitting" the competitiveness of Greek export businesses, mainly the agri-food sector.

The value of exports to the US exceeds 2.4 billion euros, covering high-quality products such as olive oil, table olives, wine and dairy products.

Given the tariffs, it is estimated that competition from third countries, which are exempt from corresponding charges, will become even greater, which is a source of great concern.