There will only be one thing anyone wants to talk about when Tánaiste and Minister for Foreign Affairs Simon Harris sits down with trade ministers from the other 26 European Union (EU) states on Monday. How should the EU respond to steep tariffs the United States has levied on transatlantic trade?
In a move that has knocked the global economy off balance, US president Donald Trump last week announced sweeping tariffs on nearly all goods sold into the US from abroad. It did not matter whether the trade was coming from allies, enemies, or uninhabited islands.
Imports from EU states will be charged tariffs of 20 per cent. Ireland stands to take a significant economic hit, as one of the biggest exporters to the US in the bloc.
The tariffs, which are effectively taxes on imports, will make it much more costly for EU businesses to sell products in the US. These extra costs are expected to be passed on to US customers in the form of higher prices, likely choking off the flow of future trade.
Mr Harris is in Luxembourg on Monday for a meeting of EU trade ministers, to debate the size and scope of the EU’s retaliation.
Already there are signs of division between the 27 national governments. Some states, such as France, favour a strong EU reaction that hits back hard. Ireland, Italy and others prefer a more cautious approach to avoid escalating the dispute into a full-blown trade war.
The European Commission is leading the union’s response, as the EU executive arm has responsibility for the bloc’s trade policy. Privately, commission officials insist nothing is off the table at this early stage.
EU capitals are expected to approve an initial batch of counter-tariffs on US goods, targeting imports of products like Harley Davidson motorbikes, boats, denim jeans, and soybeans.
These had already been in the works, to retaliate against earlier tariffs Mr Trump put on global imports of steel and aluminium last month.
A vote to sign off on the package of tariffs is to take place on Wednesday. The import duties would start to kick in the following week.
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The proposed list of products to be subjected to retaliatory tariffs is mostly made up of signature US goods, as well as industries concentrated in Republican states. The hope is that counter tariffs will put some pressure on the White House to negotiate.
Officials in the commission’s trade department, who drew up the list, have spent weeks trying to get the balance right. “We strike where it hurts, we protect ourselves,” one senior commission official said.
This meant focusing tariffs on US products that EU states could buy elsewhere. “We love soybeans, but we can get them from Brazil,” the official said.
The tariffs will affect about €26 billion-worth of US trade. When compared to the US measures announced to date, the EU’s tariffs barely touch the sides.
The 25 per cent tariffs Mr Trump has put on imports of European steel and cars, plus the blanket 20 per cent duties unveiled on “Liberation Day”, will apply to an estimated €360 billion of EU exports.
The commission and EU states are likely to come out with a second, larger, package of retaliatory tariffs in the coming weeks. Some want this to include measures on the trade of services, bringing US tech and social media giants into the crosshairs.
Mr Trump has consistently complained that the EU sells more goods to the US than it buys.
Tariffs are his blunt instrument of choice to rebalance what he views as unequal trading relationships, by collecting a cut from those who want to do business with the US. The higher a country’s perceived trade imbalance with the US, the higher the rate of tariffs they have to pay.
When it comes to services, the US has a trade surplus with the EU. So bringing the economic output of US tech companies into the mix would hurt the other side more, commission officials believe.
The Government is strongly opposed to this, given the large concentration of US tech multinationals with European bases in Dublin.
Just how far the commission may go in ratcheting up the pressure is a closely guarded secret inside the EU body’s Berlaymont headquarters.
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“We will not be able to speak about new measures, we will not speculate on new measures,” one senior commission official said.
“We have not yet discussed which instruments could be used at future stages,” another senior EU diplomat said.
A robust response from the EU risks the White House firing back with even higher tariffs, a tit-for-tat cycle the Government wants to avoid.
Pharmaceuticals were exempt from Mr Trump’s tariffs last week. However, he said he plans to follow up with specific import taxes on the sector, similar to the measures put on steel and automobiles.
The large number of US pharma multinationals with manufacturing sites in Ireland means the industry accounts for a huge amount of Irish exports to the US. The Government has been making a big lobbying push inside the EU, to prevent the sector getting hit in the crossfire of the union’s retaliatory tariffs.
Overall, US tariffs will be painful but not “existential” for the EU, said Tobias Gehrke, a policy fellow at the European Council on Foreign Relations think tank.
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“The EU needs a cool head and a firm hand: explore talks, but already prepare to strike back hard. You don’t negotiate without holding a stick in your hand. Digital and services countermeasures should be readied, while exploring options to rebalance some elements of the trade relationship,” he said.
Europe was still guessing whether Mr Trump wanted to cut a deal or not, Mr Gehrke said. “Ironically, it’s Washington – not Brussels – that’s struggling to speak with one voice. Trump says tariffs are leverage. His team says they’re non-negotiable. Which is it?” he asked.
The man the EU has tasked with answering that question is Maroš Šefčovič. As European commissioner for trade, Mr Šefčovič has been trying to build up a line of dialogue with the US administration.
The Slovakian diplomat-turned-politician has been an EU commissioner since 2009. He has a soft spot for Ireland, as he led the tail end of the EU’s negotiations with the UK during Brexit.
“Maroš is not somebody who looks for conflict, but he’s not a pushover,” said one person who knows the commissioner well.
Trusted as a safe pair of hands by commission president Ursula von der Leyen, Šefčovič also has the backing of national capitals to try to get the US around the negotiating table.
Cecilia Malmstrom, the EU’s trade commissioner during Mr Trump’s first term, said she did not envy the task in front of Mr Šefčovič.
It would be incredibly difficult to land an agreement where both sides suspended tariffs, she said. The US administration would probably throw other things on the table during any talks, such as ownership of Greenland or EU regulations on tech companies.
EU officials are hopeful that Mr Trump will eventually want to strike a deal, although the widespread view is that Europe should prepare to weather a lot of turbulence in the meantime.
