Product excellence and integration of production chains mitigate the risk of Trump's tariffs

The theme ofdutiesbyDonald Trump, newly elected American president, dominates the front pages of all the newspapers in the world. First announced during the election campaign, then reiterated and currently being defined or applied, the protectionist measures that the United States intends to introduce to protect American domestic production from foreign competition are worrying neighboring exporting countries, such as Canada and Mexico, as well as the European Union and China.

Already during his previous mandate, Trump had made use of the tariff weapon, albeit with different intensity and methods and with a "targeted" approach on particular products. Today, thanks to the consensus of America's "belly", Trump intends to use them more massively and extensively, as well as as a negotiating weapon, for example to convince Europe to buy more liquefied natural gas or technologies from the United States. Nor does Trump seem all that concerned about the risk that a trade war could lead to higher prices for American consumers. The president-tycoon seems to want to continue on his way. The first measures concerned steel, aluminium, China, while the sword of Damocles of American tariffs hangs over the heads of Mexico and Canada, between announcements and postponements, which will effectively bury the old NAFTA (North American Free Trade Agreement). Europe is in the crosshairs and is looking for a diplomatic way to contain the United States' protectionist offensive.

But what are the main supplier countries to the United States? What are the risks for Italy from the possible introduction of new American duties? What are the most important products that Italy exports to the United States?

The main exporting countries to the United States

If we look at the 2023 data, from the United States import side (figure 1), out of a total of US imports of 3,173 billion dollars, we can observe that America's top three suppliers are by far Canada, China and Mexico, with, respectively, 480, 448 and 431 billion dollars. A good part of US imports from these countries is the result of production delocalisations carried out over the years by the same American multinationals, as in the case of cellular telephones or automotive, in the framework of NAFTA. Consequently, in the introduction of any new tariffs, Trump will have to find a way to pragmatically reconcile his ideology of "American First" with the interests of the economic-financial powers of the United States, to avoid damaging the Stars and Stripes companies themselves.

Mexico and Canada have seen the application of the announced protectionist measures postponed for some time, which have instead already started towards China, which has so far responded with fairly mild countermeasures, with the clear intention of slowing down rather than exploding a trade war.

Europe is waiting for what might happen. The main European Union countries supplying the United States are Germany with 163 billion, Italy with 75 billion and France with 59 billion. The total import of the United States from these three countries, equal to297 billion, does not even reach that of Canada alone.

As regards the United States trade deficit, it amounted to a total of 1,153 billion dollars in 2023. The largest US deficit is with China, at 300 billion dollars, followed by Mexico at 157 billion and Vietnam at 109 billion. Germany is the fourth most important country with which the United States has a trade deficit, for 86 billion (of which just under 20 billion consists of medium and high-powered cars, as well as to a lesser extent electric ones), followed by Canada, for 78 billion and Japan, for 75 billion. The US deficit with Italy is onlythe eleventh in importance, for 46 billion dollars.

From all these data, it is clear that a reduction in imports from the European Union will certainly not be the key to rebalancing the foreign trade imbalance of the United States. But Trump, in his characteristic language, has already announced that Europe too "will have to pay duties" because it "mistreats" the United States.

The risks of new American duties for Italy

The issue of the tariffs threatened by Trump is at the center of the debate in Italy too, with intonations ranging from alarmism to caution, from panic to the cautious optimism of those who believe that Made in Italy will eventually weather this storm too. The possible impact of duties must be seen from different angles and can be assessed as more or less worrying: it depends a lot on the sectors and products considered.

Obviously, the risk of an increase in American protectionist barriers cannot fail to worry a strong exporting country like Italy which has the second largest market in terms of export value in the United States (behind Germany and ahead of France) and the first country overall in terms of trade surplus with foreign countries. In 2023, Italy exported goods worth 72.7 billion dollars to the United States with a bilateral surplus in our favor of 45.5 billion dollars (our second highest is the one with the United Kingdom, for 18.7 billion and the third is with France, for 18.1 billion).

There are possible global consequences of Trump's tariffs. The outbreak of a trade war between the USA, China and Europe could have very serious repercussions on world trade with cascading increases in the prices of raw materials, semi-finished products, components and finished products. The growth of the world economy could slow down. Europe, in particular, fears being crushed between the United States and China. In fact, if China were hit heavily by Trump's tariffs, a possible risk would be that it would divert a large part of its production surpluses to Europe. Furthermore, any negative repercussions on individual economies must be considered and all countries have begun to take into account the probable costs of the protectionist measures that the United States intends to apply.

Some institutions have attempted to estimate the possible specific impact of Trump's new duties on exports and on the Italian economy. Prometeia, for example, simulated two scenarios. As reported by“Il Sole 24 Ore”, the first of these scenarios provides for an increase of 10 percentage points limited to those products that are already subject to duties today and no tax for those that are instead exempt. From a sectoral point of view, in this scenario the fashion system would be most affected, together with the agri-food sector, one of the most exposed of Made in Italy. The second scenario instead simulates a general tariff increase of 10 points for all products imported from the United States. In this case, mechanics would be most negatively affected by the consequences of the new protectionism. For our exports the burden would be 4.12 billion dollars with the first scenario, which would rise to 7.20 billion with the second. Which would add up to a value of duties on the US market already equal to almost 2 billion dollars in 2023 (2.5% of what is exported to the United States).

Svimez has also developed some estimates of the possible impact of US duties on the Italian economy, on its behalf“Sole 24 Ore”. According to the newspaper, "the hypothesis of new US trade duties on European goods, vehemently relaunched by President Donald Trump, could weigh, in an intermediate scenario, 3.8 billion euros on the national GDP and 5.8 billion euros on exports to the USA. With an impact in terms of jobs of over 53 thousand work units per year".

These analyses, however, risk being too rigid in their hypotheses and conclusions and do not take into account the possible comparative variations in the competitiveness of the supplier countries of the United States, nor the possible appreciation of the dollar (which would allow part of the tariff effect to be absorbed), nor the fact that some goods are not produced in the United States and that Americans would still have to buy them from other countries. For example, imposing duties on high-tech brass valves that the Americans do not produce would not penalize Italian producers who are at the forefront in this sector.

Furthermore, Italian exports present characteristics and variety such that they may be less affected than those of other countries by the increase in American duties, also in terms of rigidity of demand to price changes, as in the case of Ferraris, super yachts, jewellery, high fashion clothing and fine leather footwear. According to some financial analysts, for example, Ferrari would probably be able to easily transfer a tariff of even 10%, 20% or 30% to the consumer, due to the target customer it addresses. In other words, even if Trump were to place tariffs of up to 30% on cars coming from Europe, Ferrari customers would continue to purchase the vehicle, because Ferrari is less sensitive to tariffs than most of its competitors. The case would be different for Porsche which would have more difficulty in passing on the higher costs to consumers. It could achieve up to 10% of any US tariffs, but problems could arise as soon as the quota rises. Porsche could rely on parent company Volkswagen, which already has factories in the United States and some spare capacity there. But there would still be very significant investments to be made by the German company.

Major concerns for Italian producers exist in sectors such as food but also in this case with differentiations from product to product. And it should also be considered that the large Italian community present in America would hardly give up some typical Made in Italy products such as cheeses, hams and fine wines even if prices, already high, were to further increase due to the tariffs. The same goes for the wealthier American classes and high-level restaurants who are consumers of these products. A statement that even applies to mineral waters, where some Italian brands have even become symbolic products for Americans. Fears over American tariffs have even set in motion preventive hoarding phenomena by American importers and wholesalers, especially in the food sector. Furthermore, several Italian food companies more aimed at mass consumption already have production activities in the United States and the duties could even benefit them.

The concerns and tones also vary between the different representative associations. An emblematic case is that of cheeses. Assolatte recently recalled that Italy is the world's leading exporter of cheese to the US market. With 37,000 tons, and a value exceeding 440 million euros, Italy covers 20% of total American dairy imports. The demand for made in Italy in the USA is supported above all by Grana Padano, Parmigiano Reggiano and Pecorino. These 3 cheeses, Assolatte underlines, alone represent 80% of the sector's Italian exports to the United States. And a new record was reached in the first 7 months of 2024: +16.7% in volume and +13% in value. Recovering the quotas lost during the previous tariffs introduced during the first Trump presidency cost a lot of work and huge investments, so there is no shortage of concerns.

In a recent interview with“Resto del Carlino”the President of the Parmigiano Reggiano Consortium, Nicola Bertinelli, declared regarding the duties threatened by America: "They must scare us, it would be irresponsible not to take care of them". Bertinelli recalled that "our export share to the USA is over 22%, equal to more than 14,000 tonnes. And the risk is that protective measures will be taken which will influence the market, indiscriminately affecting even those who, like us, cover around 7.5% of the hard cheese market in the States. Parmigiano Reggiano is sold at 20 dollars per pound, unlike the 10 dollars per pound ofparmesan. In the USA, those who buy our cheese make a conscious choice because they have 93% of the market with alternatives that cost half as much. Imposing tariffs on our product would actually only increase the price for consumers, without protecting local producers. Furthermore, inflation in the United States would also increase, when the Trump government has declared it wants to reduce it." And Bertinelli added: "United Europe must negotiate. We are optimistic because we believe that this Trump policy does not have the legs to go forward and a counterpart will have to be found to lighten duties. Italy can be the bridge between the European Union and the USA". How? Bertinelli explains: "American farmers in difficulty are paid 28 cents per litre, we have the most valued and paid for milk in the world. There are special productions of raw cheeses in Wisconsin, Massachusetts and Vermont. We will ensure that they are recognized and protected in Europe and, why not, promoted with clear and transparent labelling. We want to work with US institutions, associations and companies to support them. Provided, however, that there is reciprocity of imposition and recognition for Parmigiano Reggiano”.

In a previous interview with“Italy Today”the director of the Parmigiano Reggiano Consortium, Riccardo Deserti, regarding the new duties, had also recalled that "during Trump's first mandate we were hit for an issue, that of Boeing - Airbus, which did not concern us. Today we do not fear them; we are equipped, even if it would be better not to resort to protectionist measures which would end up only harming American consumers". And regarding the US market he had nevertheless stated: "We hope to grow at a rate of 5% per year over the next three years".

Even in the metalworking sector there is no shortage of fears, given that the margins of companies in various sectors, such as for example in earthmoving machinery or in metals and composite materials, have already been significantly reduced in the last period and the protectionist measures could therefore have a heavy impact. In other sectors, however, duties are less feared, such as in packaging machinery, where Italian technology is so far ahead of that of American companies that it constitutes a decisive competitive factor and is little influenced by price.

The main Italian products exported to the United States

Given that as we write, the scenario of the possible impact of Trump's duties on the Italian economy and foreign trade is still to be deciphered. Given also that many Made in Italy sectors hope that, even if the United States introduces wide-ranging protectionist measures against Europe, the good relations currently existing between the Trump administration and the Italian Government can still lead to respectful treatment towards our country, in this last part of our article we present a detailed cross-section of the main products that the United States imports from Italy.

The attached table allows you to appreciate some typical characteristics of our trade towards the USA. The first characteristic is the high differentiation of our products directed to the United States, which range from pharmaceuticals to cars, from shipbuilding to food, from fashion to mechanics. Which could cushion the impact of a possible imposition of targeted American duties on specific products. The second characteristic is the presence in the export of Made in Italy to the United States of a notable number of goods with rigid demand, luxury or exclusive, which could be less affected by price increases due to possible duties, from luxury sports cars, to superyachts, to high fashion, to high-end food and wines. The third characteristic is that US imports from Italy often consist of products, as in the case of pharmaceuticals or electronics and ICT, coming from American multinationals that have invested in production sites in our country in search not of opportunistic competitive advantages on labor costs as is the case of many US investments in Asia or Latin America or motivated by the search for tax advantages as in Ireland, but rather for reasons of production efficiency and technological innovation.

It is quite logical to think that the Trump administration will not be aggressive towards this type of goods because it would risk "punishing" important American companies that have chosen Italy as a strategic partner to strengthen their international leadership. As highlighted by a recent study by the Confindustria Study Center (The new US trade policy: scenarios and transmission channels. The European and Italian sectors and products most at risk, February 2025), "American multinationals on Italian territory are the first in terms of number of employees (more than 350 thousand in 2022), contributing more than a fifth of the national added value and spending on research and development. The presence of US multinationals is particularly important in Italian manufacturing, where more than 110 thousand workers are concentrated. In the electronics and ICT sector, 90% of non-EU multinationals are US-owned". And, adds the CSC Confindustria study, in the case of chemical and pharmaceutical products, "the presence of production links through companies controlled in the USA by European ones and in Europe by American ones could be a good deterrent to the Trump Administration's restrictive trade policy. In fact, more than 70% of the stock of capital invested by EU companies in non-EU countries is directed at American pharmaceutical companies; the share is the same for German pharmaceutical multinationals while Italian ones reach almost 90%. The United States is a significant destination for investments by Italian multinationals also in the sectors of other manufacturing products (more than 50% of non-EU ones), food and beverages, electronic and ICT equipment (more than a third) and, finally, chemical products and base metals (about a quarter).

Will these elements be sufficient to "shield" Made in Italy from the duties threatened by Trump? We will only know in the next few months. But, in the opinion of the writer, a rational hope is better than the catastrophes prevailing in the Italian media in recent weeks.