DANIEL MULHALL, former Ambassador to the US and former Ambassador to the UK, looks at the implications of Trump’s tariffs
DURING my student days, I remember reading The World Turned Upside Down, which looked at England’s 17th century upheavals when the old order was dramatically upended and a Cromwellian republic created. Don’t get me wrong. I am not envisaging a civil war scenario or anything like that, but the book’s title seems apt at a time when long-held norms are under pressure and efforts to remake the post-World War II global order are in train.
The NATO Alliance, which has helped keep the peace in Europe for 75 years, is now on shaky ground in light of tensions between the US and Europe about the war in Ukraine. With Washington seeming to cosy up to Moscow, many European governments now feel they can no longer rely on US security guarantees. That has prompted moves to strengthen Europe’s defence preparedness through increased spending and intensified collaboration. Uncertainty remains about the capacity of Europeans to face up to Russia without an American backstop, but the emergence of a free-standing European defence body involving EU countries and the UK now seems entirely possible. It could the UK back into a European fold without undoing Brexit.
Trade tensions have added to the cocktail of international risks and uncertainties. Not long ago, we lived in a world characterised by free flows of trade and investment in which tariffs seemed anachronistic. Ireland was a particular beneficiary of globalisation as its open economy was transformed by inward investment and an export-driven boom.
Although ‘America First’ policies were a feature of the first Trump Presidency and were continued with a quieter vein during the Biden Administration, things have dramatically accelerated since Donald Trump’s second inauguration in January. Tariffs have already been imposed on steel and aluminium products, against which the EU has retaliated. Meanwhile, trade tensions have ratcheted up between the US and its nearest neighbours, Canada and Mexico.
Donald Trump has had a longstanding obsession with tariffs as an instrument of American economic power. Since his return to the White House, he has doubled down on the importance of tariffs for making America great again. Hamming up his rhetoric, he declared a ‘Liberation Day’ with the imposition of swingeing tariffs on every country in the world, describing it hyperbolically as ‘one of the most important days in American history’ and as ‘a declaration of economic independence’. A new base rate tariff has been set at 10%, but EU exports — which of course includes Ireland — will be subjected to a 20% tariff and China 34%. Both will surely retaliate against US exports.
Trump’s tariffs will pose problems for the Windsor Framework as a 10% rate will apply north of the border but 20% in the south. If that divergence continues, Irish companies would have an incentive to locate some of their operations in Northern Ireland.
There’s no getting away from it. These are ominous developments. ‘Liberation Day’ may have come and gone, but lots of unknowns persist. We don’t know how long these tariffs will remain in place. They may face internal opposition from US businesses and consumers if retail prices start to rise. Retaliation by America’s trading partners may impact on the US economy and increase pressure on the President to change course.
In the short-term, we are likely to see a business-as-usual approach. Suppliers and distributors may cut their margins in order to retain market share. Pharma companies will continue to export from Ireland to the US, and pass on at least part of the additional cost to consumers and health insurers. In the longer-term, US companies could decide to transfer production back to the US so as to avoid tariffs. That would be damaging for Ireland, but it is not an easy option. American companies have profitable operations in Ireland with valuable facilities and skilled workforces. Those conditions will not be easy to replicate in the US where there is full employment and an ongoing crackdown on immigration. At a minimum, it will take time for companies to reorganise their production processes.
Ireland could also be hit by changes to the US tax code incentivising companies to locate more of their intellectual property in America. That would require legislation in Congress, which is never an easy task, nor a quick one.
We need to acknowledge that the golden age in our economic ties with the USA may be over. No matter how things pan out, this episode ought to teach the EU a lesson about the need to reenergise our economy. Europeans must learn to match the US in enterprise and innovation. EU economic growth could help compensate Irish companies for losses on the transatlantic front. We may also need to look again at opportunities closer to home, including in Britain as it reorients towards its European neighbours.
Going back to the book I mentioned at the start, in 17th century England all that radical turbulence ended in a monarchical restoration. I am not sure if the world we knew before the arrival of Donald Trump can be restored, but we’ll have to make the best of whatever new order emerges from the shackles of this supposed ‘Liberation Day’. The world is in for a rocky ride. Watch this space!
Daniel Mulhall is a retired Irish Ambassador, who has served in London and Washington, a consultant and an author. His latest publication is Pilgrim Soul: W.B. Yeats and the Ireland of his Time (New Island Books, 2023)