Last week we had the show in the Rose Garden, when Donald Trump unveiled tariffs on countries across the world. This week came the row back – and an embarrassing one it was for the US president. Market turmoil appeared to be central to a decision to postpone a lot of the tariffs for 90 days, to leave room for negotiations. Claims from members of his cabinet that this was all part of some negotiating master plan were risible.
After an initial jump, financial markets are now nervous again. This reflects a wider uncertainty and risk, which has not gone away despite the mid-week reversal. Significant tariffs remain in place and the chances of the US striking new trade deals with a host of countries over the next 90 days are remote. At most a few headline points might be agreed with different countries, but trade talks are all about the detail and take considerable time.
With the trade war with China also in full swing and duties still in place on steel, aluminium and cars – as well as the universal 10 per cent tariff – there is still a lot in play. And the extraordinary behaviour and unpredictability of the US president is making investors nervous of purchasing US assets. The risk for Trump is that there is no easy way back to winning market confidence and he needs investors to buy US government debt to fund the budget deficit.
The decision to row back on the tariffs being imposed on the EU from 20 per cent to 10 per cent came as some relief to Ireland. However, Trump has repeated that he intends to apply tariffs to the pharma sector. And there are risks for Ireland, too, in the desire by some in the EU to target the US tech sector as part its retaliation, if Brussels cannot do a wider deal with Washington.
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For now, there is little option for the Government but to plough on, while doing its best to influence decisions at EU level and limit any damage at home. It will publish updated economic forecasts at the end of this month. The likely hit to economic growth and tax revenues remains impossible to predict; all anyone can do for now is to outline possible scenarios.
Ministers will hope that the pharma sector can be included as part of wider negotiations with Washington, putting off the immediate threat of tariffs. A visit by EU trade commissioner Maros Sefcovic to Washington for talks on Monday may give some indication of how the land lies. A quick deal looks unlikely, even if – given Trump’s weakened state – the EU may try to see what is possible.
There is an off-ramp for all sides through negotiations. But, politically, this will not be easy. Unless Trump dials back his demands considerably, it may well be that the EU judges that a deal is not possible for now and decides to dig in. This, too, would have a cost, but there is no easy way out from where we now find ourselves.
