As Tánaiste Simon Harris met his European Union trade counterparts in Brussels on Thursday to devise a response to Donald Trump‘s trade tariffs, the dilemma facing this country was brought into sharp relief.
While a full-scale trade war will probably damage Ireland more than any other EU state, it is in our interests to give wholehearted support to the European response.
Ireland’s prosperity and our values are tied to EU membership, so it is essential that the country’s stance is not determined by sectoral interests, no matter how significant they are. The importance of a united, strong response to Trump was illustrated by the way China called his bluff.
While he has tried to disguise his climbdown with the usual bluster, the self-proclaimed master of the deal has been given a bloody nose by Chinese president Xi Jinping. The lesson for the rest of the world is clear: standing up to Trump and refusing to be intimidated is the only way to deal with the bully.
The EU has to date responded carefully, refusing to panic and making it clear that Europe remains committed to free trade. It has also let the US know in clear terms what its initial response will be if the tariffs announced by Trump remain in place.
Trump has never disguised his ambition to destroy the EU, but whether he has a coherent strategy to achieve it is another matter. “The European Union is in many ways nastier than China, okay?” he remarked last Monday, referring to the point that we pay far less for medicines on this side of the Atlantic. Yet two days later, the US side sent a letter to the European Commission indicating a willingness to deal.
The EU doesn’t have China‘s capacity to leave the shelves in American supermarkets half empty or to do serious damage to supply chains in a whole range of industries. But the other side of that coin is that Europe is not as dependent on US trade as China is.
Placating the US, in the manner of Keir Starmer, simply won’t work for the EU. If the bloc doesn’t want to become a vassal of Washington it needs to stick to a clear and coherent strategy to deal with the disruption Trump has brought to international relations.
A long, drawn-out battle would result in real pain for this country. The first set of EU retaliatory tariffs is designed to hit American whiskey and some US farm products. If these are invoked, there will inevitably be a retaliatory hit on Irish whiskey.
The much bigger worry is that a trade war could escalate to include pharmaceuticals. That would have a huge impact on the total value of Irish exports to the US and a knock-on effect on the scale of the corporation tax receipts received by the exchequer.
Since Trump took office in January, the Commission’s chief trade negotiator Maroš Šefčovič has met his US counterpart Howard Lutnick three times. Šefčovič has offered a list of potential concessions, including regulatory easing and joint efforts to curb Chinese overproduction, but he has also provided a list of retaliatory tariffs on €95 billion worth of US goods if talks fail.
Despite the potential downside for this country, it is in our interest to maintain EU solidarity by supporting whatever counter measures are required. And it is important not to overestimate the damage that could result from a trade war.
While it would undoubtedly involve a hit to our US exports and the corporate tax take, the notion that big American pharma and tech companies might flee the country is wildly overstated. They are here to avail of the European single market, the most affluent large market on the globe, and that will mean a substantial continuing presence in Ireland whatever happens.
The indications this week that the Government is preparing to scale back expectations for another giveaway budget is welcome. The time for once-off handouts or tax cuts is over. With a general election not due for another four years, the Government has the elbow room to deliver whatever kind of medicine is required in the autumn.
As well as facing the need for some retrenchment at home, the Government also needs to get real at international level. The EU is trying to defend and expand free trade around the globe, so it is time to embrace the Mercosur deal for free trade with South America rather than allowing the narrow interests of some Irish farmers to block something that is vital for our international trade.
The strength of the EU when it comes to trade should not be underestimated. Sixty two per cent of EU trade occurs among member states and another 13 per cent is with other European countries. Deepening the single market and doing free trade deals with other markets can reduce the exposure to US tariffs.
Ireland is far more dependent on US trade than the EU as a whole, but the same lesson applies. A more intense focus on trade in the single market makes sense for this country regardless of what happens with the US.
