Trade between Italy and the USA has traditionally been significant and the two countries are close trade partners. The importance of the American market for Italian firms is today at its peak after many years. The US is the third foreign market for Italian exports, in 2017 accounting for 9% of the overall value of Italian goods sold abroad. In 2017, Italian exports of goods to the USA were worth over 40 billion euros, increasing remarkably in the past five years, while exports of services amounted to over 9 billion euros. Italy runs a substantial trade surplus with respect to the USA, over 25 billion euros in goods and 1.7 billion euros in services. These figures highlight the importance for Italy of trade with the US.
The main sector of Italy’s exports to the USA is transportation vehicles, in 2017 constituting nearly one fourth of the total, followed by machinery, textiles, apparel and leather goods, and food and beverages. Automobiles are the first exported product, ships and boats are third, wines are fifth, and shoes seventh. On the product level, pharmaceutical and medical goods are also among the most important exported goods. All metals (including aluminum and steel, targets of the tariffs being imposed by the Trump administration) are less important among Italian exports to the USA, making up about 6% of the total. Italian steel and aluminum exports to the United States in 2017 amounted to 760 million euro, only 0.2% of total goods’ exports, but with a surplus in this sector as well.
Even if right now the American increase in tariffs is not directly affecting Italy’s core exporting sectors and might have only a mild immediate impact on its trade, this does not mean that Italian exports won’t be affected by a trade war and by the imposition of high tariffs on the American market. Exports are a crucial component of aggregate sales in Italy, and during the past decade many Italian firms survived thanks also to (relatively) open and stable access to foreign markets worldwide. The introduction of tariffs by the US and the inevitable retaliations, mistrust in the current system of rules supervised by the WTO and the consequential high level of tension and uncertainly, even without specific barriers targeting Italian export sectors, could discourage the internationalization of many firms, especially the small and medium in size. The recent document on Italy’s economic planning (Documento di Programmazione Economica e Finanziaria 2018) estimates the cost of a trade war on Italy in terms of about half a percentage point of GDP in the current and the next year.
It should also be remembered that steel production in Europe (like in most of the world) is already under stress because of overcapacity, and in Italy in particular steel and aluminum production is facing some uncertainty for the problems that have recently involved important plants, such as Ilva in Taranto or Alcoa in Sardinia. The Italian industry is completing a large restructuring, through a wave of foreign acquisitions, but it is still among the world’s top ten producers of steel, closely linked to the production chains of the rest of Europe, and first of all Germany. The partial closure of the US market in this sector might start a price war in Europe, too, at a moment in which the European integration process is already facing many difficulties. A general disruption of the steel market generated by American policies, even if they were not directed toward the EU, would certainly have a cost for the Italian economy.
Furthermore, American tariffs on steel seem to be only the first step in a broader strategy pursuing a hard line on trade. Trump has already announced the start of an investigation into imported automobiles that would hurt Italian exports much more directly. Another likely target of US trade policy might be the agricultural and food sector, where the country has a high deficit, and is a highly important sector for Italy on that market.
Considering the issue from a different perspective, some studies suggest that Italy could also gain by a US-China trade war, because in the case of shrinking trade between these two economies, there might be room for substituting the exports of the two countries in these markets. The restriction of Chinese exports to the USA might leave room for additional Italian exports of apparel and shoes to the USA, for example, while the reduction of exports – especially of medium and high tech goods - from the USA to China could help increase Italian exports of machinery, medical and optical goods and precision instruments to China. Even if Italy is not a large exporter of agricultural commodities like the USA, there is potentially room to expand exports in agriculture and food to China. But these studies are probably overly optimistic: these substitution effects are unlikely to occur in a general situation of increasing trade barriers and less open markets, and with a cooling of transatlantic relations.
Rather than hoping to pursue very uncertain benefits, limited to a few markets, the best strategy for Italy, like for all EU members, is to try to avoid a trade war and its high costs by taking a common strong negotiating position vis-à-vis the USA, regardless of the specific individual consequences of the tariffs in the short-run.