Up to recently other countries had hoped that US president Donald Trump could be talked back from his mistaken obsession with tariffs. Now we know he is pressing ahead, regardless of the cost. And make no mistake. Tariffs on the scale announced on Wednesday, in his customary rambling presentation, will have a significant negative impact on the world economy, and the US itself. It is a turning point in economic history and is likely to set off a chain of events which will not be easily reversed. And perhaps this is what the US president wants.
Trump will maintain that, for the US, the short-term cost will lead the US, in time, to a new era of prosperity. This, too, is mistaken, though we should not expect the president to ever admit as much. As US prices go up and jobs are lost, he will continue to obfuscate and claim that the US is being treated unfairly.
Unfortunately, the rest of the world will pay the price too, including Ireland with its significant reliance on US trade and investment, which stands particularly exposed to the economic war that now looks inevitable. The Government has been right to warn the public that this is potentially a serious hit to growth, jobs and tax revenues.
While we now know more about the scale of the tariffs being applied – 20 per cent for imports from the EU – much remains unclear. Pharma products, vital to Ireland, are spared for now but likely to face a special tariff before long.
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We do not know what might be achieved in negotiations between the EU and US. These might lead to some amelioration of tariffs, but the likelihood is that we are in for a prolonged period of trade strife, lasting potentially some years and carrying a significant economic cost.
While Ireland may push the case for EU negotiations with the US and a measured response, the prevailing view is likely to be that a firm reply is needed via tariffs on US products going into Europe – and possibly further measures beyond that aimed at US firms in the EU. The goal here would be to hurt the US and try to bring Trump to the table. The risk is that his reaction is to hike tariffs on EU imports further. Some kind of tit-for-tat trade war looks likely, if not yet inevitable.
Ireland will be caught in the middle, facing risks to key domestic and foreign sectors of the economy. In turn this will knock on to lower investment and growth. Ireland has prospered as a bridge between the EU and US and a sundering of relationships between the two brings significant dangers. Ireland’s place is with the rest of the EU, even if it tries to keep its lines open with the US.
In this new scenario, clear decisions and a forensic focus on priorities and delivery will be needed. Ireland will no longer have the option of throwing State money at all its problems. It will be about choices. The economic world has changed and much uncertainty now lies ahead.
