Upon becoming Minister for Foreign Affairs last month, Simon Harris redirected department resources to setting up a strategic advisory panel in Washington while making the Ireland-US relationship the department’s top strategic priority.
The goal was twofold: to gain early intelligence from US policymakers and business leaders on what US president Donald Trump was planning but also to try to influence policy in Washington directly.
The State’s response to the looming threat of US tariffs is complex because it will run along two distinct tracks.
Because trade is a core competency of the European Union, Ireland can’t respond unilaterally even if Trump targets the State’s big pharma industry as he is threatening to do. But the State can influence the EU’s negotiating position and its retaliatory response to tariffs, should it come to that.
Separately, the State can play the Irish card in Washington, highlighting our long-standing ties with the US while playing up Ireland’s economic importance as a top investor. Ireland is currently the seventh largest foreign investor in the US with 650 Enterprise Ireland client companies employing more than 118,000 people.
The last time Trump imposed tariffs on the EU in 2018, Irish whiskey evaded the measures apparently because of high-level lobbying on Capitol Hill. In contrast, the sector’s main rival internationally, Scottish whisky, did not and went on to lose £600 million in export sales as a result.
The potential to influence Washington directly forms one plank of the State’s response to Trump.
It will be on show next month when the Taoiseach, Tánaiste and eight Cabinet ministers travel to the US as part of the annual St Patrick’s Day programme. (Employers’ group Ibec and the Ireland Funds organisation will host dinners as part of the programme.)
According to one senior official, it will be the largest diplomatic blitz undertaken by an Irish administration in Washington since the peace process in the early 1990s.
At stake is not just €73 billion in Irish goods exports to the US, not just the 300,000 multinational jobs in the State but three decades of industrial policy that has transformed the Irish economy, a policy that is now stranded in no man’s land given the increasingly frosty relationship between the EU and Washington.
As US historian Bernard Lewis used to joke, it’s more dangerous to be “America’s friend than its enemy”, a rather oblique assessment of world history. The joke has been doing the rounds again with so many Western countries now in the crosshairs of Trump’s tariff bazooka.
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If his sidelining of Europe in talks with Russia and his overt siding with Moscow on Ukraine are anything to go by, Europe is in for a rough ride.
“With Donald Trump, you have to give him a deal, he’s transactional,” the head of Irish public relations firm Red Flag, Karl Brophy, told The Irish Times Inside Business podcast this week.
“He is someone who is very interested in presentation, which is no surprise because he’s a TV star,” he said.
“The fact that he is able to present wins rather than actually have massive wins. I don’t think what he got out of Mexico and Canada for the first tariff threat was a lot and it was actually largely stuff they were doing already,” Brophy said.
“I would be more worried about future investment in Ireland rather than the raid on what we have here at the moment,” he said.
His comments echo those made by senior Irish officials who have downplayed the prospect of a Pfizer or an Eli Lilly exiting the jurisdiction in response to tariffs. It’s physically impossible for operations of that size, which typically operate off 10-year cycles of investment, to change things that quickly, they note.
The fear is more that Trump’s protectionist agenda, in combination with a global trend towards trade fragmentation, would see planned investment here cancelled and “cool the temperature” for foreign direct investment (FDI) generally.
At the launch of IDA Ireland’s latest five-year strategy on Wednesday, chief executive Michael Lohan insisted the pipeline for investment here remained strong, noting the agency was targeting 1,000 investments, including €7 billion of research, development and innovation (R&D and investment).
The strategy pinpointed “heightened protectionism and intense geopolitical competition” as key challenges, while Lohan acknowledged that tariffs of the magnitude Trump is threatening (he has talked of 25 per cent tariffs on pharma) would be very disruptive.
[ IDA chief warns of ‘disruptive’ impact of US tariffsOpens in new window ]
Behind the scenes, the IDA and the Government have ramped up their dialogue with chief executives here but there is little they can do to mitigate the impact of tariffs other than to play up the benefits of being located here.
A central question is whether Trump will impose blanket tariffs on all trade from the EU (he has described the US’s trading relationship with Europe as an atrocity) or, like last time, impose them on certain sectors and products, on a line-by-line basis, or perhaps even target individual countries.
He has threatened to single out Danish imports if Denmark doesn’t do a deal on Greenland. The targeting of individual countries could prove a major headache for Brussels as trade is an EU competence.
The EU has strengthened the tools at its disposal to protect EU trade, which now include the Anti-Coercion Instrument designed to enable the EU to respond (through counter tariffs and other measures), as a last resort, to economic blackmail from a foreign country.
Brussels could also consider retaliating by targeting US tech services instead of goods, a Goldman Sachs report suggests. With Europe’s large trade deficit in services, the EU may use digital restrictions to counterbalance Washington’s trade measures.
Of course all this could potentially be avoided if a deal can be struck with the “transactional” US president. Mexico and Canada seemed to face off the US with minimal concessions.
Asked how the EU planned to respond to Trump’s tariff threat, European Commission spokesman for economic security and trade Olof Gill told RTÉ last week: “It’s a bit like the now manager of Armagh Kieran McGeeney once said: if you want to play football, we’ll play football; if you want to box, we’ll box. We’re prepared for all outcomes and we certainly have a list of products that we can consider targeting as and when necessary.”
The view within Government and within the commission, however, is that Trump is trying to leverage the US’s trade deficit (in goods) with the EU and is looking for two things: for Europe to buy more US energy (European Commission president Ursula von der Leyen has already mooted the idea of buying more US LNG); and for Europe to hike up defence spending and buy more US weapons. These would appear to be bargaining chips in any negotiation.
Ireland has to be careful, however, not to be seen to be pursuing an agenda (particularly in Washington) that is perhaps too self-interested and that appears to favour only Ireland.
“We need to be as strongly aligned with the EU as we were for Brexit,” one senior official said.
Where this might get sticky for Ireland is if our tax policy is seen to undercut indigenous US interests and becomes “a proxy target for trade tariff measures”, they said.
Our low tax rate is the main reason why US multinationals have located here, the main reason why they book billions in global profits here and the main reason why we have such a big trade surplus (in goods) with the US (the fourth biggest globally). These are now in the gunsights of the new Washington administration.
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A deal which rerouted some of these profits back to the US or which saw the same companies charge less for their product in the US (which amounts to the same thing) might staunch the tariff threat and give Trump the victory optics he requires. Pharmaceuticals are relatively price inelastic as they are bought in the main by government and state agencies.
Conversely another source worried that some in the European Commission might be “too pre-emptive” in their response to Trump, noting that many of his threats don’t materialise and might better be characterised as “tactical bluster”.
They highlighted the commission’s threat to invoke Article 16 of Northern Ireland’s Brexit protocol in 2021 to prevent the supply of AstraZeneca’s Covid vaccine being shipped into the North as a knee-jerk reaction which damaged international relations and landed Dublin in hot water with Belfast and Brexiteers.
“Trump could be succeeded by vice-president JD Vance in four years’ time,” says Carol Lynch, partner and head of customs and international trade at BDO Ireland. “If that happens and he continues the current America First policy, international markets could be looking at 12 years of turmoil,” she says.
“You can’t take a chance. You have to face what the worst-case scenario is and plan for that. And with a 25 per cent tariff on imported steel and aluminium announced this week, the gloves are off,” Lynch says.
She says she is advising clients to look at expanding their market outside of the US “because this isn’t going away”, a policy that echoes the diversify maxim delivered by Irish agencies during Brexit.
Ireland is not the only country to find itself scrambling to respond to Trump’s disruptive policies. However, it has benefited more than most from free trade and globalisation, a project that the new US president seems intent on recalibrating.
