The 20 per cent tariffs imposed by the United States on European Union imports last night were no worse than expected.
And the exclusion of pharmaceutical imports means that for now anyway – though pharma-specific tariffs are expected before long – the worst case scenario has been avoided. But it is still pretty bad – and almost certainly marks the beginning of a full scale global trade war.
Traditional friends of the United States around the world have been declaring that this is not the act of a friend.
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Dublin and Brussels have been understandably focused on the consequences for the EU-US trading relationship. But the list of country-specific tariffs read out by president Donald Trump was a reminder that the US is the world’s largest and richest economy, with trading links all over the world. All of that trade just became more expensive.
While different countries will react according to their own lights, the global effect will surely be a slowdown in trade, growth and wealth creation. For Ireland – one of the world’s most open and globalised economies – that is bad news indeed.
The immediate focus for the Government will be on two things: does the pharma carve out last (unlikely, unless everything the Trump administration has previously said is untrue), and does the EU’s reaction make things worse?
It is not clear, at this stage, how much Mr Trump will be open to negotiation with the EU or anyone else. Whether the US government has the bandwidth to conduct detailed trade negotiations – a notoriously complex and specialised corner of government work – with all of its trading partners at once is highly doubtful.
Trump launches a trade war against the world
In any case, while the EU has signalled that it will not retaliate instantly, it will be determined that any response is seen to come from a position of strength and resolve. Some response in the shape of tariffs on US goods will almost certainly be flagged by Brussels – likely prompting further threats from Washington.
That is what happened when the EU said it would impose tariffs on Bourbon whiskey imports a few weeks back – Trump responded by saying he would hit European (including Irish) whiskey and wine with 200 per cent tariffs. Already senior figures in the administration have been warning other countries not to retaliate.
But the view in Brussels – and among many other erstwhile allies – is that Mr Trump is a bully who will only respond to strength and will further punish weakness. In other words, it all looks like things will get worse before they get better.
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As to what the tolerance Mr Trump has for a tariff-fuelled recession and the political difficulties that will inevitably come with it: that may only become apparent in the coming weeks and months. For now, the spectacle in Washington on Wednesday – and it was some spectacle – is evidence just how much the Trump administration is intent on remaking the US economy and the world trading system.
In Dublin, Minister for Finance Paschal Donohoe and his colleagues in Government will be fretting about the practical matters of budget-making in an age of economic uncertainty.
The emerging trade war will certainly heighten the Minister’s customary caution. For several years now, successive governments have had almost unlimited money to throw at political problems. But with this extraordinary pivot in trade policy in the US that era of plenty may now be crashing to a close.
Politics can never avoid the downstream consequences of seismic economic events. This will be no different.
