By Johannes Heidecker, former economic advisor for North Macedonia’s PM.

How should governments react on the recent US tariff announcements? Retaliate with similar tariffs – like China? Propose negotiations to drill some small holes in the tariff wall – many governments have announced this, and the president is ready to negotiate « if countries offer something phenomenal ». Tit-for-tat, like for jeans, whiskey and motorcycles? Start a broader consultation – like the EU with their strategic talks to different sectors? Wait, because the US government may just reverse their decision? Or just better prepare for a world with more insecurity?

Abstract:
For the Western Balkan countries, the US market per se is not very relevant, only indirectly via the economies they sell to. They have little to offer for any kind of negotiation, at least not officially, except for Zero tariffs on US goods.
The recommendation is to focus on new markets, regional and EU first, to improve the Commerce organizations and to strengthen their own economies. This will make them more resilient whatever happens in the US.

Government Advisors are usually useless, because smart people do not need them while others do not listen. But there is an exception: A sudden crisis. As the US government only finalized its strategy in the last few hours before « liberation day », no other government had a ready response, all just knew they had to do something. This is the time to turn to advisors and ask for a detailed suggestion, due in the few hours preceding the evening news. Suggestions are difficult, because the situation may have changed before the written suggestions are finalized. Still, here is a proposal.

Basics first:

No one likes theory, but you should be knowledgeable about economy basics. Let us start with Adam Smith and his invisible hand. He describes in his « Wealth of Nations » « that governments do not normally need to force international traders to invest in their own home country. » Later, Paul Samuelson popularized the use of the term “invisible hand” to « refer to a more general and abstract conclusion that truly free markets are self-regulating systems that always tend to create economically optimal outcomes, which in turn cannot be improved upon by government intervention« . In other words, the market always wins. If you do not believe, take a look at prohibition when the US banned alcohol during 1920 – 1933. Far from converting citizens to teetotalers, it created a secondary, illegal, market for alcoholic beverages to the benefit of the Mafia. The same was true before 1989 in COMECON countries when not everyone could get consumer goods according neither to their needs nor to their regular salary, as opposed to those with access to foreign convertible cash who could afford everything at the detriment of the ‘regular’ economy.

The second person to remember is David Ricardo who came up with the theory of « comparative advantage« . In modern times, he would have argued that it does not make sense for the US to make sneakers that can be imported when this limits the chances to sell medical electronics to Vietnam.

The third person worth mentioning is George C. Marshall. He got the peace Nobel prize, not for his military successes, but for his ideas that started the « Marshall plan » and the conviction that « the division of labor is the basis of modern civilization« , and that if the US wants to sell something abroad, it needs to give the buyer a chance to earn his money, by buying from him as well. And that, without this, « there can be no political stability and no assured peace« .

The last thought, that trade will ensure peace, has been challenged in the last years, specifically with the war of Russia against Ukraine. It should be added that Russia is able to wage this war because it can trade with other partners like China or Iran.

To this set of three theories that have been validated for quite some time, should be added the knowledge of the base accounting scheme for a country. There is trade, services and financial flows and the

• Trade balance: import and export of goods; raw materials and energy are important factors
• Service balance: services bought and sold, this includes tourism
• Financial transfers: remittances from citizens from or to their families abroad, foreign investment in- and outflows, credit in-and outflows, international assistance

Only these three together mold the balance of payments. Which may or may not go against a reserve if a country has piled up some cash, like Russia or Norway from former oil sales. If a country has a negative balance of payments, it has a problem – like Venezuela or Argentina. Balancing the (Trade + Service) volume is sound economic policy, all while watching the financial balance as well. But watching the trade balance alone is nonsense. This is easier to understand for tourist destinations like the Seychelles that will never intend to produce their own buses, but a little bit more difficult for industrial nations with a mercantile past where the service import was mostly represented by slaves who got traded against some glass pearls.

The last hypothesis here is not standard knowledge, yet based on reasonable grounds: Economic growth does not correlate with democracy. We currently have countries with impressive economic growth like China, but no democracy so to speak. We have democratic countries which levy a huge toll on their economy for defense like Israel. But we can link economic growth to values like stability or rule of law. Even the most autocratic leaders tried to establish a secure system to ensure the safe back and forth transit of merchandise and its counter value. In a way, it can be argued that countries like Yugoslavia were better at achieving economic growth through rule of law than many of their successor countries with more corrupt judges and public purchasing organizations.

Second: the current situation

Before jumping to conclusions, like simply copying the recipes from 1947, countries need to consider some current issues like

• Digitalisation:

Value may be created outside the country borders, e.g. when tourists booking via Airbnb send 1/3 of the revenue off shore and outside the country taxation. Add the advertising revenue by Facebook & Co. or the trade profits of online dealers like Amazon. Add licensing, e.g. for the right to use the name Starbucks, that adds tax revenues in tax havens at the detriment of the countries that produce or serve the coffee.

Any economic policy needs to integrate these effects. The fact that most of the big digital companies are based in the US makes the required policy more complex, with a higher need for innovation and risk-taking. The US has already acknowledged this, as demonstrates the line-up of the big digital players behind the current president.

• Structural balance of payment issues.

A Lack of strategic input factors like raw materials or energy, or raw earths for industrial countries, creates a need for compensation revenues. While each country is responsible for its own balance and will thus have to find an individual solution, large imbalances are not sustainable. In economic limbo, Terms of Trade, the amount you pay for imported goods in relation to the price of your export goods, do play a role. But even if we assume fair terms because of international competition, a country cannot just let go of a (trade + service) deficit for a long time.

Yugoslavia made this experience after 1989 when no one was ready to lend money on favorable terms for global strategic reasons; the breakup was one of the consequences as the relatively richer Slovenes and Croats did not want to continue to pay for their poorer fellow states. The Euro zone mastered the Greek crisis in 2009+ but clearly showed that there are limits if there is no economic incentive for those lending funds.

As Europe has much less energy available compared to the US – selling their LNG and maybe oil is high on the wish list of the current US government – the energy strategy needs to be integrated, especially if Russia or the Middle East are not good political alternatives.

Another factor is that the US has a very export-oriented agriculture while Europe tries to keep some autarky, another area of conflict yet also opportunity: last time, a deal « soy beans against champagne » could be struck even though the then and current president prefers McDonald’s food & drinks.

Any US government should realize that in case of a balance of payments (trade + services) deficit, the shortfall has to be covered by foreign money, either through investments or by obtaining loans.

And this is true not only to finance the federal deficit. Also consider that the US borrows money from other countries for their industry and private households. As Ursula von der Leyen recalled at the World Economic Forum, « European household savings reach almost € 1.4 trillion, compared to just over € 800 billion in the United States. € 300 billion of them are invested abroad every year. » Without the savings and trust of Europe, but also Japan and China, the US could not lead the economic policy that it currently does. The tariff increase is supposed to solve this, assuming that it works. In other words, assuming that the US treasury gets more money from import tariffs than it loses from reduced purchasing power and linked economic effects through the induced price increase.

US policy background and options

The US tariff policy does not come down from heaven, and is not an AI suggestion generated last week. And the US has some more options that the president may implement.

• Increasing tariffs has been a long-term goal – for some

Analysts hint that tariffs are the one constant policy of the current president, a policy opinion rendered public in 1987 when he was running ads in the largest newspaper (The Atlantic). Changes or deals are possible on other issues but this is a tough one. Not sure for his potential successor, though, if the policy shows no results by the 2026 mid-term elections.

• Possible US$ devaluation

A devaluation of the US$ may help US exports but will make imports more costly. Money lenders will lose interest in the US$ while loans will become more costly for the US treasury. This will raise interest rates, which is bad for the US economy. Again, the tariff increase will have to bring in lots of money to compensate these effects. Devaluating the US$ on purpose – as thought by some – is possible yet risky, a catch-22.

• US Tariff vs. tax trade-off

Can the US compensate the price effect of tariffs by lowering taxes on companies and citizens? The current president is confident and points out a situation when 120 years ago not only the US, but also countries like Germany were financed by tariffs, not income taxes. This question is not easy to answer: Some countries still finance their governments that way, like Russia, the Gulf countries or some tax havens like Panama. Russia and the Golf countries perceive their income from energy exports, related royalties and export tariffs, not by import tariffs. Micro-countries like Andorra do not really serve as good examples for larger states. What can be said: if there is a large import volume as compared to the citizen base, it may work – e.g. for a Caribbean island. But if the majority of the GDP is created by the internal market, like in the EU, taxing only imports will not suffice. It could work for Alaska if very few inhabitants benefit from royalties on energy exports, become rich from attracting Silicon Valley businesses so that they can afford the tariffs on their imports. With a larger population and a rising state share, be it for education, health or social transfers, this does not seem an option.

Now, the current US tendency is to increase tariff revenue and reduce taxes and the share of the state in the GDP. How far this can go remains to be assessed. As a consequence, if tariffs rise, the US market for international exporters will become smaller.

• US share in international trade

The shrinking importance of the US in international trade is not only a prediction. According to the Economist, it is already a fact: from 20 % in 2000 it shrank to under 15 % in 2023. EU + « open market allies » like Canada, Australia and others have a 1/3rd of the global trade, more than double the US. If this trend continues, the US will become – on a global level – « economically irrelevant« . Like today’s Russia after they started the war.

These are strong words, and of course apply differently whether you sell sport utilities or snails. But it gives a clear view of the options: focus on growth sectors, and reduce your engagement in shrinking sectors.

• Negotiation tactics

Keep in mind that long before even considering presidency, the mandate current holder wrote a book that became a no. 1 national bestseller entitled “The Art of the Deal”. The front page announces “He makes one believe in the American Dream Again”. The back page cites him as “the personification of hustle”. Many of his moves could just be part of a deal strategy, like making an announcement that crashes the stock market, buying cheap, withdrawing the announcement and benefiting from the stock market gains.

Governments can take advice from him directly:

These tactics are not common knowledge, yet not new. Adolf Hitler and Vladimir Putin with his sidekick Sergey Lavrov act just alike. People with less speculative minds know how to integrate a more long-term view. Would you use 1/3^rd of your salary to rent an apartment in a Trump Tower if you do not know whether the rent doubles next week? You may see it differently if you get a three night bargain at hotel Trump, but not if you are trying to house your family for the next five years. So the “good news” of the reduction of a 33 % tariff down to 10 % should not let you forget that the next “Foreign Pollution Free Act” with a 37 to 100 % additional tax is already in the Congress.

• Acting individuals on the US side

A short look at the bio of four key players in the current administration besides the “PotUS” can also be helpful:

The Western Balkans situation

Having said all this, what needs to be added for the Western Balkans?

At first glance, the importance of exports from the Western Balkans to the US is minimal, ranging from 0,1 to 1,1 of the GDP while the US share in the total exports ranges between 1 – 14,6 %.

Let us take a look at each country separately, as their situations are quite different. (Trade data is from OEC.world in US$ mio and 2023 if available)

• Albania

Albania’s exports to the US are calculated by WIIW with 0,4 % of the GDP.

Albanian politics tend to be friendly to the current US president, be it for ideological reasons or because of business relations. Albania’s Democratic Party PDSH is like-minded, Prime Minister Rama and his Socialist Party PSSh have exceptionally granted full development rights of Albania’s Sazan Island to Trump’s son-in-law, Jared Kushner. “Rama has begun a pilgrimage across Europe to tell Europeans what a blessing it is that Trump was elected US President.” A complete shift of opinion on his part as in 2016, Edi Rama “explicitly said in two media appearances that Trump was a threat to Albanian-American relations, as well as a threat to America itself.”

The benefit: Albania got away with a 10 % tariff in the last tariff round.

Of 4,25 bil. $ Albanian exports, the US represents a meager 1,9 % with 80,8 mio $, consisting for 19,5  % of plants for perfumery, pharmacy or insecticides and 25 % textiles and shoes.

Albania imports for 8,76 bil $, 1,9 % or 158 mio $ from the US, mainly cars, aircraft parts, energy and poultry. The positive US balance should keep the US happy. The real economic impact for Albania is tourism, with 11,7 mio foreign visitors that should have generated some 4 bil $ of income. Americans accounts for a mere 3 % of the total, although their number has been growing by 11 % a year in the last seven years.

US FDI in Albania is small, around 200 US$ (Tirana Times)

• Bosnia-Herzegovina

Bosnia-Herzegovina’s exports to the US are calculated by WIIW with 0,4 % of the GDP.

Bosnian-Herzegovinian foreign policy does not usually make much noise, the reason being that the two entities act more separately than as a country. Srpska Republika’s boss Milan Dodik has been criticized by Marco Rubio, so he is not such a close friend of the current US administration as he is Putin´s.

The country exports 9,67 bil. $ of which the US gets 1,7 % or 163 mio $. Details are only available for 2022: gun cartridges account for 18,5 %, furniture and clothes/shoes have some importance.

Of the 15,8 bil. $ imports, the US has a share of 3,2 % or 512 mio $, of which 73,8 % to bituminous coal.

Bosnia got a 35 % tariff (before the pause) and you may wonder if you look at these OEC (American) numbers: why? To understand, you need to know the intricacies of the trade data: goods that leave from or arrive in Bosnia-Herzegovina e.g. via a Croatian port to go to or come from the US may be counted differently as Bosnian or Croatian. The US Census sees the trade data in 2023 as US > Bosnia-Herzegovina with 25,3 mio $ and Bosnia-Hercegovina > US with 158,8 mio $, suggesting that the Bituminous coal does not show as US export in the US data for some unknown reason. (It could also be that it is a US company doing the trade and paperwork, but the origin is in another country).

• Kosovo

Kosovo’s exports to the US are calculated by WIIW with 1,1 % of the GDP, the highest of all Western Balkan countries. But Kosovo also has the lowest estimated amount of exports of the region.

Kosovo has been a very US-friendly country since Bill Clinton supported its independence, there is still his statue in Pristina. The Kosovar AmCham has suggested to remove unilaterally the 10 % tariff on US goods hoping that the US will reciprocate, something that did not work for Israel or Switzerland.

The Kosovo government thinks about developing a skiing area in Brezovica, and at some point the idea was taking hold that the current US president could be personally interested to invest 500 mio $ there. A possible compensation could be to name a lake after him, “Lake Trump”, as special envoy Richard Grenell named it.

As Kosovo is in a complicated situation, trade data is difficult to get and OEC does not even list the country. A reason is that the north, very closely linked to Serbia, has no interest in participating in any statistic and Serbia does not see this trade as international.

Kosovo is told to have exported 889 mio € in 2024 while it imported 6 bio. €. Major export goods, after electricity, were door and window items, iron bars and furniture (Telegrafi.com).

Tirana Times estimates Kosovo’s exports to the US at 130 mio $. in 2022, roughly in line with US Census that came up with a huge deficit of 123,9 mio that same year. Things turned bad in 2024 when the US notes 49,4 mio $ exports to and 34,0 mio $ imports from Kosovo, thus the US trade has a surplus and the country only got a 10 % tariff. (Which suggests a regular adaptation of the US tariff model when supply chains change?)

• Montenegro

Montenegro’s exports to the US are calculated by WIIW with 0,1 % of the GDP, the lowest of all WB6 countries.

Montenegro is another tourism country with rare appearances on the international political scene, at least outside the Western Balkans.

Of 1,56 bil. $ exports of Montenegro, the US share amounts to 1 % or 15,2 mio $, of which 53 % is hard liquor. Out of 4,78 bil. $ of imports, the US represents 1,6 % or 77,9 mio $., coal, cars and a mix of other stuff to the liking of the current US government. The US sees slightly less exports, maybe again coal, but still has a trade surplus and therefore only applies a 10 % tariff.

• North Macedonia

North Macedonia’s exports to the US are calculated by WIIW with 0,3 % of the GDP.

North Macedonia’s current government is very close to the current US government. The Prime Minister was in Washington during the presidential inauguration, not in the White House but in a stadium where the Republican Party held an event.

Add to this several visits of closer friends of the current president like Richard Grenell or Chris Pavlovski, mostly to discuss business. But none of the projects, from data center to potential energy investments, would result in higher exports to the US.

The fact that a 33 % import tariff (before the pause) is to be applied to Macedonian goods has been declared by the government as “some kind of mistake” and the government hopes for a correction, if not for a free trade agreement or similar, although some tariff was expected.

The data comes from three different sources and there exists a detailed analysis. In essence, of the 10,1 bio $ exports of North Macedonia, the US accounts for 2,7 % or 273 mio $, 74 % of which are buses from a single Macedonian factory being built specially for the US market (i.e. unsellable elsewhere) based on US engines and transmissions. The imports are 257 mio $ from the US or 2,1 % of a total of 12,4 bio $, which gives a slight deficit of 16 mio $ according to OEC. The US Census sees this differently and estimates a 228,7 mio $ deficit in the same 2023 year; North Macedonia itself counted the buses as export to Belgium where they are driven to receive the final preparation till mid-2024.

• Serbia

Serbia’s exports to the US are calculated by WIIW with 0,7 % of the GDP.

Serbia has had long ambiguous foreign relations with nearly all countries in the world since 1945, always trying to balance their relation between the West, Moscow and now China. Serbia has a free trade agreement with Russia and privileged relations with China. Serbia also has close relations to the family of the current US president whose son was in Belgrade a few days ago. Serbia has offered his “memorial to US bombing”, a destroyed military building in the center of the city, to the president’s family to build a hotel.

The biggest country in the Western Balkans exports 32,6 bil. $, of which the US counts for 2,2 % or 707 mio $. The 2022 OEC data shows a mixed package of products and fire arms (“AK 47”) representing 10 % as a very popular import item in the US. Of the 39 bio $ imports, the US counts in 2023 for 1,4 % or 545 mio $ with a variety of products, resulting in a trade deficit. The US sees the exports to Serbia 300 mio $ less in 2023 and a deficit of 600 mio $ in 2024, justifying a tariff of 37 %, the highest of all Western Balkan states.

Add to this that US FDI in Serbia is huge, around 4 bil. US$ (Tirana Times)

Overview about trade figures of different sources:

In addition, the proposed 2025 Foreign Pollution Free Act , if enforced, will affect all countries, Western Balkans included. This means an addition of tariffs of 50 % on Iron and Steel, of 40 % on Aluminum, of 55 % on Aluminum Articles,  of 48 % on Glass & Cement, of 69 % on Fertilizer or Hydrogen, of 100 % on Solar Products and 37 % on Battery Inputs. Now, Montenegro’s aluminum plant does not work anymore, US steel has ended their activity in Serbia and these goods are not key products anyway. But Solar products or Battery inputs could be future products and e.g. Serbia exports iron and aluminum products. Bauxite, the raw material needed for aluminum, is mined in Serbia.

Conclusion of the present situation for the Western Balkans:

While the policies of the six countries of the Western Balkans are quite different, from very pro-current US government in Albania, Serbia and North Macedonia to neutral and slightly problematic in Bosnia-Herzegovina, Kosovo and Montenegro, the trade numbers show a similar picture:

• the USA, at least directly, is not a relevant trade partner
• in several countries the numbers between the country, the US and from an international perspective differ
• the tariffs did not take any “political proximity” into account, just the US Census statistics
• potential business projects with US partners do not involve trade but rather investments in tourism or energy.

In comparison to the free trade agreements and the close exchange that the Western Balkan countries have with the EU, there is neither potential for significantly higher US exports nor any major importance of the US market for the countries in general, except for the very few specific factories like the Serbian rifle or the Macedonian bus manufacturers. These could be hit very hard as they hardly have alternative markets on hand.

On the other hand, all countries are very much dependent on the EU economy, so if there is an economic crisis in the EU, there will be less exports and less jobs for Balkan manufacturers. Some countries can compensate with tourism, others are not able to do so, at least not in the next three years. Measures for tourism can have an effect within a few weeks/months. Establishing new supply chains, looking for new customers or offering new products takes years.

Recommendations to the Governments of the Western Balkans

Negotiations with the US

In the Western Balkans the first reaction was to negotiate with the US government to get a better deal. The arguments differ, from “there is an error that will be corrected” to “we abolish our tariffs, they will abolish theirs”. No one is mulling a “phenomenal” offer, at least not in public.

Different countries have different strategies towards negotiations. China has acted without negotiation, set tariffs themselves and sold US treasury bonds in higher amounts. The US has reacted with increasing the tariffs even further. The UK and Japan have been first in line for negotiations. UK Prime Minister even handed an envelope with… an invitation by King Charles. US President admitted to lacking time to handle the many talks already waiting in line. Others, like the EU, have first started consultations with their own industries, before coming up with offers that may not be acceptable to voters, like to allow the chlorine cleaning of food.

The Western Balkan countries may be well advised to wait a little bit and use the time to consult with one another before negotiating, individually or together. In a few weeks, the US administration may feel the first effects, as occurred when the bond market moved so much that the US president paused the additional reciprocal tariffs.

If some countries get a deal, this could map a path to others to in turn achieve similar agreements. Offering a zero % tariff for industrial goods comes up as a standard offer. With some luck, some or all of the Western Balkans could get some favorable treatment even though their trade balance remains negative in the US view: the total amounts are not really significant. Not being in the EU, the Western Balkans may be more flexible on product standards: it does not really matter if vehicles that fulfill the US windshield standard FMVSS 205 do not fulfill the EU ECE R43 standard because any new vehicle will be safer than the many old clunkers that drive along the Balkan roads.

Governments are advised to check where they should lobby and with whom they have to negotiate. The EU trade envoy Maroš Šefčovič just found out that talking to US Secretary of Commerce Howard Lutnick (a “personal friend“ of the Prime Minister of North Macedonia) or US Trade representative Jamieson Greer was not helpful to avoid any tariff escalation since the one pushing the president for higher tariffs is the presidential advisor for trade and manufacturing Peter Navarro.

There could be phenomenal deals available “in private”, as the “Special Presidential Envoy for Special Missions” Richard Grenell is quite familiar with the region and projects are flying around. Chances are better to achieve a small exception for one/a few specific custom codes of one specific party with good lobbying than a general agreement that even large countries with no trade deficit like the UK could not achieve since Brexit, with or without the current president being in office. Unless, of course, the current US government changes its mind.

Following the US statement that they had to slap tariffs on an island inhabited by Penguins only “to close absurd holes in the system”, tariffs are favored over checking the customs documentation to find that a rock without harbor or inhabitants cannot export 1,4 mio $ mechanical and electrical products. The time it takes for the first ‘phenomenal’ deal to occur will indicate if and when more deals are possible. The US has been very consistent in the last weeks: they want more production to move to the US, and less non-tariff barriers for US goods in the world. Offering only zero percent tariffs – when present tariffs are not so high anyway – may not suffice.

Focus on other markets

The direct importance of the US market is rather small for the Western Balkan countries, except for a few companies like the exporters of coaches in North Macedonia, ‘household’ AK 47 rifles in Serbia, perfume ingredients in Albania, hard liquor in Montenegro or cartridges in Bosnia-Herzegovina.

Add to this textiles, shoes and furniture for all countries. These goods can however be sold anywhere in the world. The US represents 15 % of the world trade. A good market, a profitable market, yet small as compared to the rest of the world. And the rest of the world may have no such tariff barriers.

The first market to look at is the EU itself. Its potential is far from being exhausted. Regional trade only with the surrounding countries Greece, Bulgaria and Romania gives the Western Balkans a market with more inhabitants than their home market, comparable purchasing power, tastes, and within a few hours drive. Using tourism and the diaspora, additional markets in the EU can be reached with food products, and near shoring becomes even more important. The potential is huge for further exchanges, be it services, tourism or goods. Neither China nor Latin America have the luck to have so many “trade ambassadors” in a target market to explain how to cook with Ajvar, why rafting in Albania can be an adventure or that having the accounting done in Herzegovina is a viable alternative to Germany.

Growing trade with other parts of the world, from the Middle East over to Africa and Asia, seems like a good idea. But keep in mind: if a country is not able to adapt Ajvar to the local taste of Denmark despite the help of its huge diaspora, how will they conquer the Kenyan market with far less cultural and personal links.

A few countries already have special trade agreements and there is potential. Serbia has some with Russia and China, Slovakia with South Korea. No big impact on exports but some help in getting FDI (Foreign Direct Investments) from China. Add the shorter connections via the Greek ports compared to shipping goods via the Netherlands to Asia. Again, this will be easier for some countries but politically difficult for others. Focusing on the EU may be the faster option, although no opportunities should be neglected.

It is necessary is to focus on how customers are currently hit by the US sanctions. North Macedonia will have issues exporting a high-tech alloy beam to Germany if a third of these beams end up in electric vehicles sold in the US and this number is decreasing. Especially North Macedonia, Bosnia-Herzegovina and somewhat Serbia should reconsider the cluster risk of being dependent on passenger car manufacturers for their exports and refocus on commercial vehicles, agricultural machinery and machine parts instead. They are very often similar to manufacture as passenger car parts, in the same quality but with lower volumes. Which makes those supply contracts within better reach of existing manufacturers, local or foreign.

Attention should also be paid to the defense industry, specifically by the NATO members Albania, North Macedonia and to some extent Montenegro. Demand is rising and production capacity is scarce. There is no reason why Macedonian welding structures could not be attractive as part of a European military vehicle if a similar structure becomes unsellable for a coach intended for the US.

• Strong international commerce organizations

Switching the trade (and service export) focus needs a strong international commerce organization, strong chambers of commerce, good collaboration between different industries (e.g. food export and incoming tourism) and a professional management.

While such organisms exist, their practical value has a huge need for improvement. WB6-CIF Chamber Investment Forum has taken some steps. Their market access database exists. But it is a far cry from AliBaba that allows every European to access a digital supermarket. The good news: proposals for such digital tools are in the drawers and funding would be available. The bad news: the dust on such proposals takes more space in the drawer than the proposals themselves.

Another issue is the collaboration of national institutions with one another. Take the example of North Macedonia: The Ministry of Foreign Affairs and Foreign Trade with his economic counselors, the Invest in North Macedonia agency with its export promotion task, the SKSM chamber with its export club, the SSK, MASIT and OEMVP chambers with their export support together with 14 different trade missions from different countries all try to promote the export of Ajvar, textiles or steel beams. And this does not include the Agency of Promotion for Tourism. If a request for a Macedonian supplier of plastic fixtures comes in, it takes a lot of luck to route it to the potential supplier. Even though the country supplies the plastic shells of Kinder chocolate egg gifts worldwide – except to the US where they are illegal.

In Serbia, a few months ago CEBAC, an association of all associations and chambers, was created. The Austrian way to combine most of the functions under a single organization has been praised. Yet to be seen how such an idea can be realized in countries like the confederation of Bosnia-Herzegovina or Kosovo.

Activities can be joined, at least for some countries. The “Open Balkan” Belgrade “Wine Vision” is an example thereof, despite excluding wine-producing Kosovo and placing the by far largest producer and exporter, North Macedonia, just as “number two” on the fair. Likewise, ideas for common tourism marketing exist since years. The latest CEFTA agreement now allows travel agencies to drive their buses from one country to another, however still excluding tour guides who have to stay home: a Serb from Vranje is not allowed to explain to a Japanese visitor the history of the 50 km-neighboring Macedonian town of Kumanovo.

To sum up, there are opportunities, and there is the political reality. Countries can at least strengthen their own national organizations. Serbia is an example of what can be achieved.

Strengthening of the home market

The EU has made it a goal for the Western Balkan countries: strengthen the local economy. They have put money behind it, 6. bil. € in the RGF “Reform and Growth Facility”. The first payouts have been made.

In essence, it would not be necessary to export to the US or anywhere else if the local population would consume the products and services produced in the country. With the twist that good jobs and lifestyle may reduce emigration, and more inhabitants increase the market for local sales.

This even is an official reasoning for the US tariffs, buried deep in the Executive order in para 11:

« Moreover, non-tariff barriers include the domestic economic policies and practices of our trading partners, including currency practices and value-added taxes, and their associated market distortions, that suppress domestic consumption and boost exports to the United States.  This lack of reciprocity is apparent in the fact that the share of consumption to Gross Domestic Product (GDP) in the United States is about 68 percent, but it is much lower in others like Ireland (27 percent), Singapore (31 percent), China (39 percent), South Korea (49 percent), and Germany (50 percent). »

In essence, the US is saying

Your policies take away too much money from the consumers, so we cannot sell enough to them.

and this is also valid for the Western Balkans. This is especially true for cars, where the VAT adds to the tariffs. A US vehicle like the Dodge Hornet sells for 30 854 € in the US including the 6 % GST Sales Tax in Michigan. The essentially identical Alfa Romeo Tonale would sell, including motor vehicles tax and 18 % VAT, for 42 300 € in North Macedonia, the net income for the manufacturer being the same. No wonder that most imports are used vehicles and smoky used cars raise the pollution of Skopje to 69 PM₁₀, far above the 25 PM₁₀ level that car-intensive Los Angeles records according to the WHO data at a given point.

The lower growth and consumption are probably a consequence of a higher stake of the state in the GDP, increasing labor cost and taking away purchasing power through taxes. It makes sense to increase efficiency through digitization and cutting red tape. A goal that the EU has already set by asking to cut regulations in the RGF.

The S3 Smart Specialization Strategy gives recommendations on how to achieve higher economic growth, and the EU has made S3 mandatory for all European regions. Albania, Montenegro, Kosovo, North Macedonia and Serbia already work on Smart Specialization plans, Bosnia-Herzegovina is in preparation. Government administrations, academia and companies are supposed to work together to focus on the economic development, regulations and research in promising sectors only.

Education comes as another focal point. Different countries face different situations, but the high unemployment of University graduates shows problems in the system. Vocational education is on the rise, which is good. Smart Specialization may step in. Bear in mind that a good vocational education should dedicate over 50 % of the time to professional learning in the company. To become a successful baker, it is more important to be a guru of pastry variation than to know what national heroes thought who ate them some centuries ago. The “number of anthroposophy graduates that Czech Republic needs” (to cite the Czech president) is much lower than the number of English-speaking accounting graduates, some ‘economic steering’ and interlocking with the job market, e.g. via mandatory traineeships, can thus help.

Investments in infrastructure will strengthen the countries. But before starting a high-speed rail from Skopje to Blace, it would make better sense to repair the road to Vizibegovo. A high quality but cheap intercity bus network, conveniently named “Student Agency”, has done more for public transport in the Czech Republic at close to zero public cost than all plans to realize a railway line from Prague to Nuremberg or Munich. Sometimes, a sense of what can be done with a quick return in money and time should prevail over “politically correct” ideas that will take years and millions of Euros but risk to end up like the Bagdad railway: a good basis for literature and movies, but nothing for public transit.

However, this does not mean that an optimized economic mix between airline, rail, clean buses and clean cars plus skates, bikes and pedestrian options cannot improve life in the Western Balkans tremendously.

Investments in Health are an issue for the Western Balkans. Probably it will need more means. It would be wise to immediately implement new approaches like in Denmark where the focus is to spend more on prevention thus less on the recovery of sick people. Errors from the Western European countries can be avoided. Not every pregnancy requires six ultrasounds, at least not for medical reasons. Privileging the contact to the doctor or community nurse (male/female) and less “let’s buy machinery and scan them all” should help to keep the costs down. Newer EU members like the Czech Republic and Poland have shown that health systems can be run more efficiently than in Germany. Tele-medicine is another solution to bring solutions everywhere, including in every mountain village. Digitalization can keep costs down. Everyone complains about the lack of staff, while they explain that they spend half their time on paperwork. In our time of digitalization, « time on person » target should be 90 % and logging the potty result of grandma and grandson alike should be left to technology.

In this context, elderly and juvenile care can also benefit from attention. The family network up to the “zadruga” is much stronger in the Western Balkans than in Western Europe. The “system” should use this, from family taxation to flexible work possibilities. Here as well, a system of community nurses (male/female), the establishment of social enterprises and many more competences can help to keep the youngest and oldest in the community instead of storing them in old age camps like it happens in other countries for those not fortunate enough to pay for private care.

That energy and climate preservation need action is no news. The Western Balkans have to increase their production of renewable energies. They are blessed with plentiful sun. Opportunities exist from photovoltaics to hydrogen, this latter could flow through existing pipelines to buyers “gore”, further up north. Governments should be aware that the state has no money for all these investments, not even for the necessary power transmission lines. Activating private capital is key. While some countries are fast to implement, others are lagging behind and pay the price with higher electricity cost and higher pollution from coal.

The same goes for recycling or waste management. The concept that every village will have their own waste or water treatment company that conveniently employs all friends of the acting mayor may be tempting from a political perspective, the sad reality however is that water treatment plants are as rare in the Western Balkans as illicit dumping in the nature is plenty. Private management is required to run things efficiently. Other new EU members could settle the problem within a generation. Hint: it is a necessity for tourism, which can bring more money to poorer regions than the waste/water management costs. Just take a look at Austrian or Swiss mountain areas that were much poorer than Skopje or Belgrade 100 years ago.

Conclusion

To sum up, negotiation, alternative markets with the help of strong commerce organizations and strengthening the home market are the three options. Negotiations do not really seem a promising option to solve the general problem of export dependency, not so much directly to the US but rather to the EU, with special regard to passenger car suppliers.

Touristic countries withstand somewhat better and seem to be more resilient. Developing tourism is within reach of every country.

The internal market, not only within WB6 but also with the EU, shows far more potential. If Estonia started at a comparable level to that of North Macedonia in 1990 and has now doubled its GDP per capita in purchasing power, so can North Macedonia by making the most of its home market and benefiting from its ties to the EU. Other continents may be opportunities, but need preparation and at least a medium-term strategy. Going via FDI attraction seems a safer bet than hoping that Macedonian rice cookers become a hit in India or Japan.

We may think that what happens on the other side of the Atlantic is not relevant. But we should be aware of its impact on Europe that trickles down to the economically weaker Western Balkans. People may vote with their feet and just emigrate. Citizens in the Western Balkans can endure a lot. Yet the current unrest in Belgrade and elsewhere shows that their patience is not endless, the Balkans have known revolutions before.

The Western Balkan countries are not (yet) part of EU, but definitely in Europe. Unlike the current US policy, Europe does not want to re-balance its trade to the detriment of the Western Balkans. But in times of war in Ukraine, the capacity and the means of Europe are not endless, and each Western Balkan 6 country competes with Ukraine and Moldova, both eager to outpace them for their mere survival.

The Western Balkan countries will be hit harder by the indirect impact of US tariffs via the slower economy of their EU partners than by any reduction of direct exports to the US. Using existing market potential within their own economies, the region, the EU and the remaining 85 % of world trade left in the rule-based WTO trade sphere offers enough compensation for what they risk to lose. Staying open, tourist and trade-friendly and caring for the wealth of their own citizens remains the best choice to deal with #TariffEscalation.

Further Sources:

• Richard Baldwin, Trump Tariffs and the World Trade System
• Simon Evenett, Marc-Andreas Muendler: Evidence from Tariff Laffer Curves – Tariffs cannot fund the government
• Simon Evenett: Briefing on US Tariff Pause
• Tommaso Giardini, Svenja Bosard: Geopolitical Tensions in Digital Policy
• Shuting Pomerleau, The New US Carbon Tariff Proposal: A Brief Overview

__

Johannes Heidecker was manager in different industries with a long-time experience in several Central and Eastern European countries. In the last four years, he was economic advisor to the Prime Minister of North Macedonia.