The script repeated by European leaders has been the same for months. Everybody hopes the European Union and the new United States administration can continue to have a good relationship, working closely together, as they have in the past. The only problem is the new occupant of the White House has different ideas.
Since the early hours of November 6th, the chaos that comes with Donald Trump’s return to the US presidency has been rumbling towards Europe.
Trump has been clear about what he wants. The Republican strongman has a vision of US companies bringing jobs they create abroad back home, as well as the factories they have built overseas and the taxes they pay there. This view pays less attention to the connected nature of the world as a series of interlinked economies, societies and supply chains. Trump’s instinct is more zero sum. America First means US dominance, even at the expense of traditional allies.
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The new president wants Europe to buy more goods and services from the US than it sells across the Atlantic. He hopes to achieve this by wielding trade policy like a cudgel. Tariffs, a tax levied by a government, would be put on imports sold into the US. During the election campaign Trump spoke about hitting goods coming from Europe with duties of up to 20 per cent.
“The European Union is very, very bad to us, they treat us very badly. They don’t take our cars, they don’t take our cars at all, they don’t take our farm products,” Trump said this week. “They are going to be in for tariffs… It’s the only way you’re going to get fairness,” he said.
The European Commission, the EU executive body that sets trade policy, has been dusting off its playbook from Trump’s first term. Back then when the US hiked tariffs on steel and aluminium coming from Europe, the commission hit back with tariffs on certain US goods, such as bourbon whiskey, motor boats and Harley Davidson motorbikes.
Under the Biden administration a deal was struck to temporarily suspend the taxes. The truce was previously extended but expires this March, meaning a confrontation between Trump and the commission over tariffs looms. There are concerns a series of escalatory tariffs could blow up into a EU-US trade war. As a small, open economy with a lot of trade flowing to and from the US, Ireland would be particularly bruised if this came to pass.
Trump also has the amount of tax US multinationals pay overseas in his crosshairs. Officials in the Department of Finance are busy trying to interpret the intent of a day-one executive order that withdrew the US from a global tax deal. Parts of the order suggest Trump plans to scrutinise how US multinationals are taxed abroad. He has asked the treasury to investigate “discriminatory foreign tax practices” and report back within 60 days.
This should concern Ireland, given how much the corporate tax take from US tech and pharma profits has funded giveaway budgets of recent years. If the net result of Trump’s efforts is multinational corporations end up paying less tax in the Republic, you won’t hear many complaints from their boardrooms.
European Commission president Ursula von der Leyen, who was not invited to the inauguration, has said the EU is ready to engage with the Trump administration. “When the time to negotiate comes, we will be pragmatic in seeking common ground. But I also want you to know that we will always stand by our European principles,” she told MEPs in the European Parliament on Wednesday.
EU officials hope they might find common ground with the White House on China, as Trump’s animosity towards Beijing is obvious. The EU can point to a firmer line it has taken recently to levy tariffs on electric vehicles produced in China, to stop cheaper imports undercutting the European market.
[ Ireland risks being caught in the middle of Trump’s tax warOpens in new window ]
Commission officials are drawing up plans to offer the US several trade sweeteners, in an effort to avoid a retreat into a tit-for-tat tariff scrap. This will include European states promising to buy a lot more liquefied natural gas (LNG) from the US. While there is a sense of inevitability inside the commission that a showdown over tariffs is coming, it hopes striking an early deal on LNG supply could set a more positive tone with Trump.
A former EU ambassador to the US said it was important Europe did not seem “needy” in early interactions with the new administration. “We should be determined to fight, determined to push back if needed, but ready to compromise,” the former diplomat said.
Even if the EU manages to get on Trump’s good side initially, it will never be able to stomach the level of economic subservience needed to keep him happy for four years. When that becomes clear, Ireland could find itself in an awkward position in the fight that would likely follow.
