The big question being asked in Dublin and other capitals around the European Union (EU) is whether Donald Trump’s decision to hold off on imposing tariffs on imports into the US on day one is a sign of a more considered approach, or just, as one senior business source put it last night “a temporary reprieve”.
Trump promised that “instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”
He suggested “massive” amounts could be raised by this policy. But instead of moving immediately to impose tariffs as he had indicated he would, he instead said that federal agencies would examine trading practices being used by other countries.
This could pave the way for tariffs by providing a rationale for Trump to move ahead – and give him some legal cover to do so without Congressional approval. Or it could be that tariffs are kept in reserve as a threat as Trump tries to renegotiate trade deals and put pressure on countries like Mexico and Canada to control immigration and drug smuggling.
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Trump also promised to create what he called an External Revenue Service, writing on Truth Social that L “We will begin charging those that make money off of us with Trade, and they will start paying.” This is a strange move as the US alrady has a tax collection agency, the Internal Revenue Service which collects tariff revenue and Trump has promised to cut back on government, rather than expand it. It may for now be nothing more than a signal of intent,
What happens next is important for Ireland. Trump had suggested tariffs of 10 to 20 per cent on imports from countries around the world, a potentially big issue for companies exporting from Ireland to the US, including US pharma subsidiaries here and domestic firms in areas like food and engineering. Tariffs on this scale would price a lot of them out of the US market, or lead to a big fall in profitability.
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Some move on tariffs by Trump looks inevitable, though its shape remains unclear after the inauguration speech and the initial executive orders.
This may reflect some uncertainty, with reports that his senior cabinet and advisers favour different approaches.
Ireland will hope that those favouring focused tariffs - on China in particular and perhaps on certain industries win out. But there is still a lobby among Trump’s supporters calling for wider or so-called blanket tariffs on all imports into the US hoping they would raise revenue to help cut taxes elsewhere and to fund the renewal of renew the tax cuts introduced by Trump in 2017 which run out this year.
Irish companies are already preparing for impact of Trump’s tariffs
Blanket tariffs would be bad news for a small trading country like Ireland, which would take a direct hit on exports and lose out in the inevitable trade war that would follow, as the EU retaliated by putting tariffs on goods coming here from the US. In turn this could have an impact on foreign direct investment.
Ireland will also closely watch Trump’s move on corporation tax, but as this will require negotiations with Congress it will take longer to play out.
Here again Trump has promised to take an aggressive approach, saying America will no longer be “beholden” to foreign organisations for its tax policy – presumably referring to the Organisation for Economic Co-operation and Development (OECD) corporate tax policy that Ireland signed up to.
Were the US to withdraw from this completely, it would mean complications here. Trump’s move to withdraw from the US climate accord shows his disdain for such co-operative agreements.
It remains to be seen if Trump can afford to cut the main US corporation tax rate to 15 per cent from 21 per cent now, removing Ireland’s tax advantage. Another option being touted is that the rate would be cut for domestic manufacturing in the US.
The technicalities of how the US deals with the foreign income of US companies and other associated rules will also be important to Ireland.
This will all likely fall into negotiations on what is called a budget reconciliation approach with the US Congress, where the US national debt and budget deficit will be a significant constraint.
Some months of uncertainty lie ahead for the next Government and Irish economy as we wait to see what Trump will actually do. We heard the rhetoric in Trump’s speech, but have yet to see the reality spelt out. As on source put it last night, Irish businesses will wake up every morning and check X and Truth Social to check what the unpredictable new minister has done.
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