Central Bank of Estonia estimates rising global trade barriers could cut Estonia’s growth by about 0.5 percentage points

The Central Bank of Estonia published remarks by Governor Madis Muller from a public seminar on the changing trade environment, warning that free trade can no longer be taken for granted and that small, open economies such as Estonia are particularly exposed if protectionism spreads. Eesti Pank estimates that an increase in global trade restrictions could reduce Estonian economic growth by around half a percentage point, even if US tariffs have only a limited direct impact. The bank expects the main drag to come indirectly via Estonia’s key export markets that are themselves dependent on the US market. Drawing on discussions at the International Monetary Fund and World Bank annual meetings, Muller linked heightened trade restrictions and tariffs to weaker global growth prospects, higher prices, weaker competition and slower growth, with uncertainty weighing on investment and consumption even if tariffs prove short-lived. He argued that complete economic independence is not a workable solution, likening the trade debate to Estonia’s electricity market where security of supply requires both local capacity and effective cross-border connections, and he cautioned against Europe responding to US tariffs with its own high tariffs, instead prioritising alternative trade relationships and better use of the European Union’s internal market so firms can shift markets and reorganise supply chains.