This year is looking full of economic danger for US president Donald Trump. Despite what he says, his tariff agenda has been seriously upended. The US economy is not delivering for voters and consumer sentiment is at its lowest level in more than a decade. And the markets are wobbly, with investors now starting to look for reasons to sell, rather than ones to buy. And now the weekend attack on Iran will test investor nerves further
Trump’s economic agenda has been contradictory and dangerous from day one – but despite this the economy has ticked along and share prices have headed generally higher. He will have hoped to turbocharge the economy into the midterms, with households due to get a tax refund and a crucial and under-discussed factor – a weak US dollar – helping to boost exports.
The political need to run the economy “hot” explains his pressure on the US Federal Reserve Board, its central bank, to cut interest rates. This could help borrowers – and lower the value of the US dollar further. He will hope that it can also support the US stock market, which he seems to see as a key marker.
It is sugar-rush economics, looking for a quick fix with no regard to the longer-term consequences. And of course it has a cost, threatening to boost inflation, damage confidence in US assets and lead to a nasty economic hangover. But Trump will not care if the Republicans can get through the midterms in reasonable shape.
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But he is going to have to get lucky. His tariff policy is in tatters and the lack of a plan B following the widely-predicted supreme court ruling is further evidence of the sense of chaos and disorganisation which seems to underlie much of the administration’s work. In the wake of the new 10 per cent global tariff, there are ships leaving ports across the world this week – including Irish ones – carrying goods on which it is not clear what tariff rate will apply when they land in the US. “It is a case of ship and see,” as one observer put it.
Against this backdrop, it is unclear whether the US/EU trade deal can be rescued. Both sides will try – and this means it may survive, but the law of unintended consequences with Trump’s new global tariffs may yet cause problems in Europe. And Trump’s own tactics remain unpredictable.
For Irish exporters it will be important to watch what the US president does, rather than what he says. Tariffs are not popular with US voters and are – correctly – getting the blame for higher prices. For this reason, Trump looks unlikely to plough ahead with further big increases in these import taxes. In pharma, which is of vital interest to Ireland, deals have been done between the administration and several of the big companies involving lower drug prices in the US and more investment in US sites. Trump is unlikely to want to upend these.
Taoiseach Micheál Martin may get a few verbal digs on the ribs when he visits the White House. But the US president’s main focus may well be to use the occasion to play along to Irish-American voters
Many had suspected that even before the supreme court decision, he was already tiptoeing away from the worst of his tariff threats, while still wanting to retain a significant base of these taxes to generate vital tax revenue. The weakness of the US dollar may be the bigger short-term concern for Irish exporters. The 12 per cent drop since Trump took office harks back to the Nixon devaluation of 1971 – when he abandoned convertibility with gold, partly due to a desire to boost the flagging economy. With Trump expressing content with the dollar’s level and some diversification of international investors away from US assets, there could be more to come.
As Trump tries to keep the economy hot, his other big concern will be the markets. Two things this week were notable. One was a wobble in US markets after a research note from a little-known company called Citrini Research. It outlined a “scenario” – not a prediction – in which artificial intelligence agents had wiped out a lot of white-collar jobs by 2028 creating “a negative feedback loop with no natural brake”, pushing US unemployment over 10 per cent and leading to a meltdown in the financial sector.
The report faced criticism and questioning about its apocalyptic reasoning. But perhaps the most interesting point was the negative response on US markets, with share prices of companies seen as most exposed to AI, such as software firms, falling rapidly.
Then, despite unveiling stellar results late on Wednesday, Nvidia, which has become the world’s most valuable company on the back of supplying chips for AI development, suffered a 5 per cent plus share price drop on Thursday. Investors said they were worried about the sustainability of the investment boom driving demand for its chips. Like the reaction to the Citrini note, it pointed to a market looking for reasons to be nervous and potential trouble for a president who had recently boasted that it could double in value.
The fall-out from the attack on Iran now enters the equation, likely to lead to a jump in oil prices and nerves in share and bond markets. It will further test investor confidence in the current frothy market valutions.
Ireland has no choice but to ride the wave of tariff chaos and potential market upheaval. And of course the regulation of the tech sector remains a key point of transatlantic tension and another possible cause of trouble. But with the US president focusing on stoking up the economy for the midterm elections, you would expect he would be cautious about the damage at home from starting a full-scale economic war with Europe, even if stumbling into one can never be ruled out.
The big longer-term questions about what the drift to economic nationalism means for Ireland and the sustainability of the State’s corporate taxes – particularly in relation to pharma – remain. Big new plants being built by American multinationals could have implications for foreign investment here and vital supply chains in the years ahead.
Taoiseach Micheál Martin may get a few verbal digs on the ribs when he visits the White House. But the US president’s main focus may well be to use the occasion to play along to Irish-American voters. This year everything needs to be seen through the prism of the approaching midterm elections.
