Trump trade - a quick guide to US tariff plans

Donald Trump has captured the world’s attention with his new policy on tariffs.

What is a tariff and who pays it?

A tariff is a type of tax charged on something imported into a country. So when the US imposes tariffs these apply to goods that it is importing from another country. A tariff is paid by the company importing the product. However, the cost is often passed on to the consumer. Or the company sending the product from another country may come under pressure to provide it at a lower cost. If a tariff is high, it could limit the sales of the product in the US market, or even make it uneconomic to sell there at all.

Tariffs were used historically to protect industries from foreign competition, but have been cut significantly over the years, particularly in big economies like the US and the EU.

What has Trump announced?

A programme of “reciprocal tariffs”. This means that the US says it will impose the same tariffs on other countries as they impose on its exporters. In theory this sounds simple but in practice its implementation is potentially very complex, as countries impose a whole range of different tariffs on different products. Trump has given his team 180 days to come up with a plan, though his incoming commerce secretary Howard Lutnick has said a plan could be ready to go at the start of April.

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How will it work?

We don’t know yet. Trump has said the US will match tariffs imposed by other countries. This would put those such as India, Vietnam and Thailand – which charge significantly higher tariffs – in the frame. The EU’s tariffs, on average, are not much higher than the US, though there are points of contention including cars, where the EU charge is higher.

But as well as tariffs, the US has said other issues it sees as distorting trade will also be included in its calculation of what tariffs to impose. In the EU’s case it said this will include VAT, the sales tax charged in Europe, which the US now claims is a barrier to its companies selling into the European market, as well as a range of regulations and rules which the EU applies. This could mean significant tariffs on EU exports though we have no idea of how such non-tariff factors might be included in the calculation.

This could make Irish products - in areas like food and drink, for example - more expensive in the US market. It could also push up the price of drugs manufactured here for US purchasers - unless the pharma companies accept lower profit margins. Trump hopes in time this will encourage more pharma production for the home market in the US itself.

Why is Trump doing this?

He argues that other countries have taken advantage of the US and that this needs to be addressed. The key evidence he uses is that the US runs what is called a deficit in trade with other countries around the world. This simply means that the value of the goods the US imports from elsewhere is a lot greater than what it exports – to the tune of $1.2 trillion. Ireland is in the frame here because we are one of the countries with which the US runs a particularly big deficit – in other words Ireland exports a lot more to the US than we buy from them. This is almost entirely due to exports of subsidiaries of US pharmaceutical companies in Ireland back to the US market. Trump says he wants this production relocated back to the US, as well as other strategically important products such as microchips.

So there will be negotiations?

Yes. And it remains to be seen to what extent Trump may pull back on his plan if he gets concessions. However, the scope of what he has targeted – running not only from tariffs but also VAT, trade rules and even the regulation of big tech – makes it hard to judge what he is looking for. It is not yet clear whether tariffs are fundamentally a negotiating tactic or if he sees them being put in place for a prolonged period. Their likely impact on pushing up US inflation may be a key factor politically.

And what about Ireland?

As the country with which the US has the fourth largest trade deficit, Ireland is clearly at risk. The EU negotiates on trade matters on our behalf, but Trump may try to target individual EU countries too. A lot hangs on whether tariffs are a semi-permanent feature and if so what their scale would be, and what other measures the US might introduce in areas including tax to try to get production to move back to the US market. But while the details are not clear, there are dangers here to investment, jobs and tax revenues.