Even though Trump pledged across-the-board tariffs during his campaign, many economists and analysts have viewed those threats as more of a bargaining chip than a concrete plan. However, on February 1st, 2025, he imposed tariffs on imports from Canada, Mexico, and China soon after he took office.
There is now a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China. Europe is still unsure whether there will be any tariffs or how many percent. Still, many European businesses that have their production in China are already affected.
“I see now more than ever how important it is to produce in the European Union“
Hardware and physical product companies from Europe feel this the most. We reached out to Croatia’s Circuitmess, a startup that produces Educational STEM kits featuring a variety of robots and devices. Their specially tailored approach to learning got them global attention and sales, alongside partnerships with brands like Geek Club and Warner Bros.
Coming from the biggest toy fairs in Hong Kong and Germany, Circuitmess’ CEO Albert Gajsak shared the sentiments of entrepreneurs with production or HQ in China. “They are pretty worried and frustrated, and for a reason. If taxes increase by 10% or 25%, you need to raise your prices by at least 5% or 20%. This automatically makes you less competitive than a manufacturer based in the USA or Europe.”
To cut down costs, many European hardware businesses were constantly considering moving their production to China. Circuitmess has also been pondering it. However, now the tables have turned. Since the “trade wars” started, they’ve actually been acknowledged as a European-based company… “Most American and European stores/retailers appreciate that our products are made in the EU,” Albert says.
“After these fairs, I see now more than ever how important it is to produce in the European Union. All the stores immediately see you differently.”
One of the solutions: Diversifying revenue
Coming to the US market a few years ago also showed Circuitmess that you cannot put all your eggs in one basket.
“Even before all this happened, we practiced diversifying our revenue. We saw just how unstable the American economy is. Last year, we faced many strange situations: three companies went bankrupt and never paid us, and two other partners also went under. We lost a $2M deal because another company, worth $900M, went bankrupt.
That’s why we tried to focus more on Europe, Asia, and Oceania, particularly Australia. We sell a lot in New Zealand as well, but Thailand was our fourth highest revenue-generating country in December 2024, and Hong Kong was fifth.”
This year, for the first time, they ran a promotion for the Chinese New Year, which allowed them to grow as a company, mainly because they decided to focus less on revenue from the USA.
“Tariffs are Trump’s most dangerous domestic policy”
European companies will inevitably have to raise prices for overseas products if Europe gets tariffs. However, even without that, the markets are unstable. Over the past year, Circuitmess had to revise product prices three times to stay profitable.
“When you’re in the business of manufacturing physical products, you constantly have to adjust prices, and prices are fluctuating wildly. Not just yogurt prices but also electricity and fuel, increasing your shipping costs. Prices for plastics, semiconductors… Everything is getting more expensive quickly, including labor.”
This is an example that is more specific to the hardware industry, but it is still worth considering when we assess Trump’s administration actions and their impact on the American and global economy. For good or for worse, there is a high chance Trump’s administration might shoot its leg, as Croatian economist and CIO of Oraclum, Vuk Vukovic, explained recently:
“Tariffs are imposed on goods imported from abroad. By design, they increase prices of foreign goods like cars, wines, or olive oil from Europe, washing machines, furniture, and TVs from Asia, as well as intermediary goods like steel or copper or various food items from Mexico, for example. The logic is that domestic consumers are discouraged from buying foreign cars, TVs, and wine and buying American instead.
However, if the product is an intermediary, the importer typically shifts the price of a more expensive input down to the end consumer. They certainly won’t bear the burden themselves. In addition, higher prices of foreign goods tend to increase prices of complementary US goods. In the end, you get a net increase in price levels across all goods, foreign and domestic, plus a hidden increase in prices for all end products that use foreign intermediary goods in the production process.
This is why tariffs are Trump’s most dangerous domestic policy. They will bring inflation back, and markets won’t like this.”
This piece first appeared on The Recursive Newsletter, to get more exclusive stories, sign up for the newsletter here.
