The impact of Donald Trump’s tariffs on Ireland – and the trade war that may well follow – will take some time to play out. But there is no doubt that the sweeping tariffs announced on Wednesday evening in the White House pose a significant economic threat to this State and particularly to investment, jobs and tax revenues.
It was a landmark moment in the Trump presidency, declaring the US’s “economic independence” – which is bad news for a country like Ireland that relies on US trade and inward investment. Trump made it crystal clear that he wants production for the US market to come back to the US and there is more to play out here in terms of how his policy evolves.
What we know is that most imports from the EU will face a tariff of 20 per cent. This is roughly what was expected and at least Ireland was not picked out for special treatment. Importantly, according to a White House fact sheet last night, pharma products will not be covered by this initial round of tariffs. If confirmed, this is some relief to Ireland in the short term – though some products in the wider pharma/chemicals sector could still be covered.
Pharma is, however, expected to be hit by special tariffs due in coming weeks, and a tariff figure of 25 per cent has been mentioned. So it may be a temporary reprieve, but reports suggest the sector was looking for tariffs to be phased in rather than introduced quickly. How this plays out will be vital for Ireland.
Meanwhile, a 20 per cent tariff is still a significant barrier for other Irish exporters to the US – and so the main sectors involved, which are food and drink and a range of smaller companies in a range of areas, are going to face significant challenges. This will cost jobs, investment and tax in the years ahead, and its immediate implementation, including hitting goods already in transit, will be disruptive. So will the likely imposition of pharma tariffs.
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The companies involved have to decide whether they can pass on the tariff increase to consumers – or others on the supply chain – or can absorb it through lower profits. The bottom line is whether they will still be able to sell in to the US at all. The answer will be different from company to company but this will, in time, have a cost to jobs and economic activity in Ireland. And, crucially, to investment levels.
And the risk is of all this getting worse as the EU and other countries respond and a huge trade war takes off. Ireland will argue for restraint here, but other capitals will want to respond strongly. In turn, Trump has promised to respond strongly to any counter measures – so the EU has a decision to make. Does it try to talk first? And if so, what is Trump looking for? Meanwhile, big tariffs on China and some other Asian countries could lead to these countries targeting EU markets, providing new competition for Irish producers at home and in other export destinations.
One key question remains unanswered. Does Trump see the tariffs as a short-term negotiating tool or a long-term revenue raiser for the US exchequer? He may be trying to have it both ways. By setting a so-called baseline tariff of 10 per cent, he is setting tariffs which he may want to retain in the longer term to help pay for tax cuts elsewhere. This could perhaps provide a target level for the EU if it does enter negotiations with Washington. But dangerous times lie ahead before this happens.
