Hungarian Investment Promotion Agency

Customs duties have not been a part of our everyday lives until now. Younger generations have not really encountered this formerly frequently used instrument of trade policy in their lifetime. However, historical examples show that tariffs and trade restrictions can help strengthen industries and elevate whole economies. For many decades, the United States, Germany, Japan, China, and even South Korea have protected many sectors with a complex system of tariffs and other trade restrictions. Most of them only began to push for tariff dismantling and free trade after reaching a certain level of development.

But the transition has not been peaceful everywhere. Hoping to mitigate the effects of the Great Depression of 1929—the most severe economic downturn in modern history—the United States turned to tariffs. However, the Smoot-Hawley Act of 1930, which imposed tariffs or tariff increases on hundreds of products, backfired, triggering a prolonged trade war that further deepened the crisis. Washington finally abandoned the policy of tariffs and embraced the idea of free trade.

This approach to economic policy was unshakeable for decades after World War II in most parts of the world. In the 1990s, at the height of globalization, imposing tariffs was regarded as almost a crime. However, with the disintegration of the unipolar global economy, the course of history has abruptly shifted once more. At the end of the previous decade, the United States responded to the emergence of China as a potent new challenger by reviving its tariff policy.

The pace of developments has accelerated, with the EU-China standoff reaching new heights, and more and more countries have begun to reorganize their international relations in light of recent geopolitical events. Not insignificantly, these actors together account for around 60% of world GDP. Tariffs are now with us in Europe, whether we like it or not. And it is unlikely that they will soon be back in the realm of antiquated tools of economic policy.

At the same time, the Central and Eastern European region, and Hungary in particular, can continue to develop in this new global economic era. Furthermore! We are confident that the momentum will intensify. Long before the recent developments in tariff policy caused a stir, The Economist, one of the most respected economic journals, published a comprehensive summary of the opportunities presented by the new situation. According to the paper, our region could once again become a major global destination for foreign direct investment (FDI) through a series of mutually reinforcing processes, including near-shoring, which brings production closer to the market, and friend-shoring, which relocates production to politically reliable locations. All this provides Hungarian companies with an excellent opportunity to become suppliers to more and more market leaders.

The basis for these successes is EU membership and the resulting access to a single market of some 450 million people in the EU-27. Additionally, the straightforward relationship between rising tariffs in a specific industry and unrestricted capital movement results in a rise in capital inflow, as it becomes more cost-effective to construct manufacturing capacity instead of paying tariffs.

But such incentives are not enough to attract FDI. Our biggest competitors, the countries in the region that joined the EU in 2004, compete for investment with similar and often higher levels of support and similar industrial traditions. That is why we need our meticulous and persistent contacts to win projects like the BYD project, the world's largest emerging player in the electric car sector, which we have secured for Szeged and the whole South-Hungarian region after more than 220 rounds of negotiations. And that is why companies from Asia, such as Nissin Foods of Japan, one of the biggest players in the global instant noodles market, and KunlunChem of China, a leader in electrolyte production, have chosen Hungary as their first European base. But the Korean heat sink adhesives specialist CK EM Solution has also built up a significant manufacturing base in Europe, and China's Zoomlion, one of the world's top five heavy machinery manufacturers, has also chosen Hungary.

Recently, the Hungarian Government has made enormous efforts to develop balanced economic and investment relations in all directions of the wind rose. It is safe to say that today we have the highest level of political relations in the European Union with the two superpowers, the Chinese and the American leadership. We have been able to exploit this positional advantage, and we intend to continue to do so in the economic field.