Things had settled a bit since the fuss of Donald Trump’s so-called liberation day in early April, when the threat of imminent tariff hikes cast a cloud over the economic outlook. The US president’s subsequent reversals had even raised some hopes that the worst might be avoided, in terms of the impact of foreign direct investment.
But it has been clear over the past few weeks that a deal between the United States and the European Union on trade would not be easily reached. Trump wants the EU to make unilateral concessions to avoid higher tariffs. Remember additional tariffs of 10 per cent on EU imports have already been introduced by Trump and 20 per cent tariffs had been threatened.
The EU, quite rightly, wants a mutual negotiation where the US rows back on the tariffs already introduced in return for concessions from Brussels. Trump’s latest threat of 50 per cent tariffs from June 1st on imports from the EU, announced on Friday, is clearly a negotiating tactic to try to break the logjam. Nobody believes that 50 per cent tariffs, which would effectively stop most EU imports into the US, would be in place for any length of time. EU growth would take a heavy hit - and Ireland would be most exposed. But the US would be inflicting major economic damage on itself, too.
But no one knows how this will play out, either. And it will only up the uncertainty already spreading through the Irish economy.
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Under the bonnet of the economy clear signs of nervousness and caution have already been starting to appear. The latest Trump volley – also threatening Apple, one of Ireland’s big taxpayers with tariffs on iPhones entering the US – will seriously add to the nerves.
There are few signs of this building uncertainty yet in Ireland’s real economic data. It is too early for that. But there is enough evidence at the coalface of the economy to conclude that it is now having a real economic impact. And this is set to continue, as Trump ups the ante again, increasing the risk of a period of transatlantic turbulence to which Ireland - as a major exporter to the US and beneficiary of US investment is particularly exposed.
The US president’s credibility in making such wild threats is seriously in question. He has already been forced to pull back on tariff plans by the reaction in the financial markets. You would have to reckon that tariffs of 50 per cent on the EU may never be imposed – or at worst be there for a short period. However, the threat of significantly higher tariffs on Irish exports to the US is back on the table. Businesses understandably do not know whether they are coming or going. And they will react accordingly.
Whatever their precise level, the imposition of yet higher tariffs on Irish exports to the US would mean a serious hit to growth, multinational profits and investment, and tax revenues. Trump hinted that the mooted 50 per cent tariffs would apply across the board, though it is unclear where pharma would lie, with the US administration awaiting a special report on this sector. It is all a recipe for rolling uncertainty which will knock confidence.
As this plays out, the economic wobble already under way in the Irish economy will become more evident over the summer. Already the first signs are there. Businesses are slow to commit to long-term capital investment plans – this is most obvious in sectors directly in the tariff firing line, such as pharma, but also applies more generally. A lot of new inward investment is on hold – and so are projects in sectors across the economy, as nervousness trickles down.
In the property market, starter homes continue to sell like hot cakes, but a number of sources point to a slowing at the top end of the housing market. Asking prices are being trimmed, there are fewer viewings and houses are slower to sell. Data from the CSO this week showed a small monthly fall in property prices in Dublin in March. The outlook for prices may remain underpinned by lack of supply, but the higher end of the market is worth watching.
Areas of the recruitment market are slowing. This year’s graduates in many disciplines will have less choice as big US tech employers reduce their intake. Giants such as Microsoft, Meta and Accenture have announced global lay-offs in recent months – AI is one driver of this – and so are likely to take in fewer graduates this year. The latest CSO figures for the jobs market show that, up to March, overall employment in Ireland was holding up remarkably well. Skills shortages remain in many areas. But it would be a surprise if there was not some significant cooling in the jobs market over the balance of the year.
It is pointless trying to game plan how this will work out. But it is hard to see the uncertainty lifting quickly
This silent slowdown is spreading. A key driver is nervousness among higher-paid employees in sectors such as tech and pharma and also the professional services sector that relies on these firms. They will now be on alert as relations between the EU and US get rocky. Lifestyles – including property purchases – which are funded not only by salaries but also bonuses and options will come under pressure. The top end of the property market – both for house purchases and rental – has been driven in large part by the extraordinary income created from high salaries and share options in tech and related sectors. Now this sector has come off the boil.
In turn, the headlines influence wider consumer confidence – as shown by recent surveys sponsored by the credit unions which take the household pulse. The latest assessment of current economic indicators from the Economic and Social Research Institute also shows some fall-off in consumer spending in the first quarter of the year, compared with the same period last year. If the Trump threats spark a transatlantic trade war, this will all intensify.
And caution in business will ramp up. “Cost control is back, for the first time in a few years,” according to a partner in one of the big accounting firms. Some companies reliant on non-essential corporate spending – events, leisure and so on – are also noticing. And it will not help the domestic SME sector, already struggling with costs.
We should not really be surprised. It is called the business cycle. The wonder in Ireland is that the period of expansion has continued for so long, with activity levels shooting higher after the Covid disruption and the bulk of additional jobs filled through immigration, with pretty much full employment at home. Now, after a time when all the engines of the economy were on full power, the period ahead looks more mixed.
[ Trump pushes EU to cut tariffs or face extra dutiesOpens in new window ]
It is pointless trying to game plan how this will work out as Trump goes on the rampage. But it is impossible to see the uncertainty lifting quickly. Ireland has the budgetary resources to deal with the fallout in the short term. However, the longer-term impact on foreign direct investment of the new US economic nationalism will surely be significant.
In the meantime, the key thing to watch is the vital factor in all economic calculations: sentiment. It is changing in households and businesses and this is having an impact. What happens next will largely depend on how the Trump tariff story plays out. Here, your guess is as good as mine. But it won’t all be sorted in a few months and his latest comments seriously increase the risk of a damaging trade war and more unsettling swings on financial markets. The toxic weed of uncertainty is taking hold in the economy and will now be spreading further.
