I recently went to view a local production of Fiddler on the roof. In the opening scene as the fiddler is playing his violin from the roof, the main character Tevye says “a fiddler on the roof. Sounds crazy, no? But here in our little village of Anatevka, you might say every one of us is a fiddler on the roof – trying to scratch out a pleasant, simple tune without breaking his neck”. The fiddler is a metaphor. He symbolises the delicate balance we all need to maintain to survive in a world that’s always shifting under our feet. This thought came back to me when the US President Donald Trump announced the wide ranging tariffs on goods imported to the US on 2April. Suddenly the whole world became full of fiddlers trying to keep their balance on the roof.
However, let us reframe everything correctly.
As shown below, in 2024, goods exported to the US represented around 5% of all goods exported from Malta, while goods imported from the US represented around 3.5%. This shows that the direct impact of the tariffs announced by the US President on 2 April, should be rather limited.
Source: NSO
However, what is more of concern is the indirect impact. A cursory look at Malta’s Balance of Payments shows that Malta exported some €22.8 billion worth of services in 2024, out of which €14.5 billion was to EU countries. This shows the heavy reliance Malta has on EU economies, especially when it comes to services.
In 2024, the European Union exported €531.6 billion in goods to the United States, marking a 5.5% increase from the previous year. The top European countries exporting goods to the US were Germany, Italy, Ireland, France and the Netherlands. The goods exported to the US in 2024 represents around 10% of all goods exported from Germany, Italy and the Netherlands, 5% from France and a whopping 30% from Ireland.
Collectively, these five countries accounted for approximately 70% of the EU’s total goods exported to the US in 2024. The primary goods exported from the EU to the US included medicinal and pharmaceutical products (22.5% of total exports), road vehicles (9.6%), general industrial machinery and equipment (6.4%), electrical machinery and appliances (6%), and machinery specialised for particular industries (5%).
I believe the above gives a good overview of the possible indirect effect on Malta’s economy if European economies that export to the US have an economic slowdown because of these tariffs. One has to keep in mind that the EU’s reliance on goods exported to the US represents 3% of the overall EU GDP in 2024.
Thus, although Malta’s direct exports to the US are limited, the broader economic implications of the US tariffs on the EU can have indirect consequences. Some of these consequences include:
- Supply chain disruptions: Maltese companies that are part of European supply chains exporting to the US may experience disruptions. For instance, if a Maltese export company supplies components to a larger European manufacturer that exports to the US, decreased demand from the US could reduce orders for the Maltese supplier.
- Economic slowdown in key markets: The tariffs may contribute to economic slowdowns in major European economies. A downturn in these markets can lead to reduced demand for Maltese exports, both goods and services.
- Investor sentiment: Increased global trade tensions can lead to market volatility, potentially affecting foreign direct investment in Malta and the broader EU.
To navigate these challenges, Maltese businesses involved in exporting goods should consider strategies related to diversify further export markets, but most importantly in my humble opinion, all businesses in Malta should double down on efforts related to enhancing competitiveness by investing in innovation, technology and workforce skills that improve product and service offerings, making Maltese businesses more resilient and adaptable to changing market conditions.
In conclusion, as I write this article, the EU response to the US tariffs is not entirely clear. The EU has expressed a mixture of responses with some advocating a preference for negotiations while others to implement retaliatory measures necessary. European Commission President Ursula von der Leyen emphasised the EU’s commitment to engaging in discussions with the US while also coordinating with other global trading partners to address this significant shift in US trade policy.
German Ambassador to the UK, Miguel Berger, highlighted the EU’s readiness to retaliate but underscored the preference for negotiation to avoid a damaging trade war. He pointed out that sectors like Germany’s automobile industry could suffer dual losses, affecting both European exports and operations within the US market.
Given these developments, I believe the EU is more likely to pursue a dual approach: seeking diplomatic negotiations to resolve the trade dispute while preparing targeted countermeasures to protect its economic interests. This strategy aims to mitigate potential economic repercussions and prevent an escalation into a full-scale trade war. The fiddler is trying hard to keep his balance.
Silvan Mifsud is director at EMCS Advisory and also vice president of The Malta Chamber
