Analysis: Price increases and possible punitive measures from US could affect Romanian economy

 Price increases and possible punitive measures from the US could affect the Romanian economy, especially sectors that closely collaborate with the American market, Alex Milcev, leader of EY Romania Tax and Legal Department, maintains in an analysis."In the current context of international trade relations, the measures and countermeasures adopted by the United States have become subjects of intense debate and negotiation, both in relation to large economies like the EU and China, as well as with its direct neighbours, Canada and Mexico. These actions seem to be part of a complex game aimed at obtaining concessions, but also long-term advantages, where the US strengthens its position on the global market. There has been much discussion on this topic over the past two months, so I decided to take a closer look at what this challenging context brings to the Romanian economy. And the impact is more complex than it appears at first glance," writes Alex Milcev.According to him, Romania's direct trade with the United States is not significant, as both imports and exports of goods to the US are limited.At the same time, the value of Romania's intra-EU27 trade in 2024 was 66.7 billion euros in exports and 90.9 billion euros in imports, representing 72% of total exports and 72.1% of total imports.According to INS data, Romania's exports to the US amounted to 2.11 billion euros, while imports stood at 1.2 billion euros, resulting in a trade surplus of over 900 million euros. The US is Romania's second-largest non-EU trading partner, after the United Kingdom, but only the 12th partner overall. The share of exports to the US in Romania's trade balance is 2.5%, while the share in total imports is 1% (aggregated data for the first 11 months of 2024), the quoted source notes.However, EU member states are most exposed to these trade tensions between Europe and the US following the installation of the new US administration at the White House. Therefore, adverse effects could ripple through, and not necessarily marginally, the Romanian economy, affecting the prices of goods imported from or through EU countries, and very possibly even impacting GDP growth and inflation this year.According to the analysis, another important aspect of this trade war - and one far less visible to the general public - concerns BEPS 2.0, an international agreement targeting corporate profit taxation. Nearly 130 countries have committed to imposing a minimum tax rate of 15%. However, the US decided to withdraw from this agreement (which it had initiated a few years ago), invoking a disadvantage for American companies. This decision has generated diplomatic and economic tensions between the US and the European Union. If the BEPS 2.0 directive does not disappear, the US has indicated that it may impose punitive measures, including massive withholding taxes on income from services provided by European firms to American clients. These incomes, now exempt in most cases, could be taxed at up to 30%, which could significantly affect Romania's IT sector, for instance, which heavily relies on the US market. A sudden tax increase could undermine Romania's international competitiveness and discourage investment in this sector. Many operations, such as call centres, could become unprofitable."In conclusion, although the immediate impact of the trade measures between the US and Europe on Romania may seem limited, the indirect effects could be massive. Price increases and possible punitive measures from the US could affect the Romanian economy, especially sectors that closely collaborate with the American market. It is crucial for Romania to monitor these developments and prepare for potential changes in the international trade landscape. Just like the political community, the business environment must also ask itself: what's Plan B?," Alex Milcev writes further.EY is one of the largest professional services firms globally, with 392,995 employees across over 700 offices in 150 countries and revenues of approximately 51.2 billion dollars in the fiscal year ending June 30, 2024. Present in Romania since 1992, EY provides integrated services in audit, tax, legal, strategy and transactions, as well as consulting to multinational and local companies through its over 1,000 employees in Romania and Moldova.