Potential Setback for Latvia's Economic Growth: Expert Predicts 0.5% Decrease Due to Trump's Tariff Dispute
Latvia's Economy Faces Indirect Challenges from U.S. Tariffs and Global Trade Uncertainty
Latvia's economy, which has been experiencing a resurgence after a period of stagnation, could face indirect negative effects from increased U.S. tariffs and global trade uncertainty.
While Latvia is not a major target of U.S. tariffs, the consequences arise indirectly via Germany and other larger European economies. According to estimates, Germany, a key trading partner for many Central and Eastern European countries including Latvia, is expected to suffer a long-term GDP loss of about 0.4% due to U.S. tariffs after 2025 [1]. This could translate into lost investments and jobs for Latvia due to the ripple effects of reduced demand and production disruptions.
Direct bilateral trade exposure between Latvia and the U.S. is moderate. In 2023, Latvia exported about $631 million of goods to the U.S., with key exports including hard liquor, particle board, and broadcasting equipment, and imported about $269 million primarily in aircraft parts and refined petroleum [3]. However, specific sectors could face risks if U.S. tariffs spread or cause broader uncertainty in global trade.
Global trade uncertainty tends to weigh on overall economic growth and investment optimism. Latvia’s economic sentiment improved somewhat in mid-2025 but remains below long-term averages, with some sectors like construction and retail showing weaker sentiment, possibly reflecting cautious confidence amid external risks [4]. Uncertainty around U.S. trade policy can contribute to this subdued outlook by dampening exports or importing costs.
Despite these challenges, there are positive signs for Latvia's economy. According to OP Financial group, Latvia's GDP growth this year is expected to be 2.5% [2]. Economies must adapt to an increasingly unpredictable environment, but Widgrén predicts that Latvia's businesses have a strong track record of adapting to challenges, ensuring long-term stability in the economy [5]. Investments are also expected to strengthen in Latvia, further supporting economic activity.
Compared to Estonia, Latvia shows stronger private consumption growth [6]. However, global trade uncertainty could have more profound effects on Latvia's economy, potentially dampening investment and export activity. If the EU retaliates with its own 25 percent tariff, the impact would increase to over 0.5% [7]. The risk of additional tariffs remains a key concern in the global economy, with a 25% tariff on Europe estimated to reduce GDP by 0.4% according to the Kiel Institute [8]. For the Baltic countries, the impact on GDP from potential tariffs would likely be similar to that of Europe as a whole.
In conclusion, while the exact magnitude of the impact may be limited compared to larger EU economies more dependent on U.S. trade, sustained tariffs and uncertainty carry negative risks that could restrain Latvia’s economic growth and trade performance moving forward. The broader global economic outlook remains optimistic, but Latvia's economy must navigate these challenges to maintain its resilient growth trends and support economic expansion.
References:
- BBC News
- OP Financial Group
- U.S. Census Bureau
- European Commission
- Swedbank
- Bank of Latvia
- Kiel Institute
- European Commission
- The indirect negative effects of increased U.S. tariffs and global trade uncertainty could potentially lead to lost investments and jobs for Latvia, given the ripple effects of reduced demand and production disruptions in key trading partners like Germany.
- As Latvia's businesses have a strong track record of adapting to challenges, they can potentially navigate the negative risks of sustained tariffs and uncertainty, ensuring long-term stability in the economy, but the broader global economic outlook remains uncertain, requiringLatvia's economy to adapt to the increasingly unpredictable environment.
