The Trump tariff story rolls on and on. Even over the past week or so, we have had threats of 50 per cent tariffs on the EU to apply from this weekend, then a postponement of this deadline till July, then a court ruling that the US president did not have the authority to impose such blanket tariffs at all, followed by an appeal court decision which put a stay on this decision.
Confused? Well, join the club. Even the finest legal and political minds are struggling to keep up and identify where, exactly, we are now and what might happen next. The financial markets have been operating on the basis of what has been dubbed the “Taco trade” – with analysts arguing that investors should keep buying shares because “Trump always chickens out” on his tariff threats.
We can hope this continues and that the worst does not happen. But it would be most unwise to base Ireland’s economic strategy on the Taco theory and the hope that all the transatlantic trouble will be sorted quickly. Donald Trump could as easily lash out as chicken out. We just don’t know.
The odds are that the rocky period we are now seeing is not going to end any time soon. Trump’s talk of doing strings of trade “deals” is based more on Maga promo than reality, judging by the flimsy details which have emerged to date. Treasury secretary Scott Bessent’s comment late on Thursday that talks with China are “stalled” is also significant.
And the negotiations with the EU do not seem to have made much progress, as a Brussels hierarchy driven by process meets the chaos of Washington. Smarter minds in Dublin worry that the EU may be in a dangerous place, being late in the queue of countries trying to reach some kind of accommodation with Trump.
The extent to which Trump can use his tariffs weapons is now in question, after the federal trade court decision that he exceeded his powers with blanket tariffs. But he will appeal – and still has the legal option to use tariffs in specific sectors on national security grounds, like tech and, important for Ireland, pharma. His new budget bill also gives the US the power to target companies and individuals from countries seen to treat US companies unfairly with penal extra taxes. Tax wars could yet join trade wars.
So where does this leave Ireland? The Government cannot be hypnotised into inaction by the White House and the risks from what Trump does next. It needs to be seen to get on with it and send out a message that it is going about its business amid the international chaos. And here the next couple of months will be crucial.
A review of Ireland’s massive State investment plan – the National Development Programme (NDP) – is due for publication over the summer. So is the so-called Summer Economic Strategy, which sets out the game plan for the Budget. After a shaky start, the Coalition needs to use these to try to shape a new narrative.
The Government can’t remove the uncertainty that has spread through the economy and is now stalling investment and, increasingly, hiring. But it can try to underpin confidence by focusing on doing a few important things. One is approaching the budget in a sane and strategic way – unlike last year’s pre-election giveaway – and building Ireland’s leeway for a possible hit to corporate tax revenues and what seems now an inevitable general economic slowdown.
This will require a summer battle between the budget ministers Paschal Donohoe and Jack Chambers and the rest of the Cabinet, who will see extra billions and want to spend them. And, for now, extra billions are indeed likely. Ireland’s growth figures, and quite possibly corporate tax revenues, are about to get another boost from huge exports to the US so far this year, as pharma and other sectors try to get product across the Atlantic there before tariffs hit. On paper, Ireland’s economic boom is about to get boomier. In reality, this is a classic once-off boost which will reverse, sooner rather than later.
The other key challenge for Ministers is to start to get to grips with the big infrastructural blockages facing the economy and building some kind of positive narrative, rather than continued talk of failure and a seeming inability to progress anything. This is now urgent.
Big US investors here have projects on hold due to the tariff uncertainty. Sooner or later they will have to make a call on where to invest next. Ireland cannot control the impact of whatever Trump does on these decisions. But the State’s infrastructural shortcomings are now a big factor in what they do next and here the mood music is poor. This will take years to fix, but the Government needs to get out the message that it has a plan and, crucially, that it can execute it.
Of course, it also has to cope as best it can with swings of the Trump-driven agenda. The ongoing exceptionalism of Irish economic data – set to repeat this year – unfortunately keeps the State in the spotlight. There will be tricky territory to negotiate as the focus intensifies on the extent of pharma exports by US companies from their Irish bases to the American market – a big factor in the US trade deficit with the EU – and the tax boost Ireland gets from this, at the expense of Uncle Sam. And as the OECD corporate tax deal, which Ireland hoped would lead to some peace in this area, gradually falls apart, putting a lot back into play in another vital area for Ireland.
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In turbulent times, you always look for the pressure points. Pharma and corporate tax are the key ones for Ireland. But it also has some economic and budgetary strengths to help in trying to pick a way through all this. Relying on a “Taco” strategy and hoping the transatlantic threat falls away in the months ahead looks unrealistic. But the Government cannot just sit back and be hypnotised by what is happening in the White House – it needs to be seen to get on with it.
