The events that unfolded in the White House Rose Garden last Wednesday evening marked the beginning – not the conclusion – of what is shaping up to be a turbulent, protracted, and unwelcome period for the global economy. The key word here is global. No one emerges as a winner from tariffs, least of all the United States.
For Ireland, three key priorities must guide our response: maintaining perspective, supporting the most affected sectors, and controlling what we can to ensure Ireland and Europe emerge stronger from this period – however long it may last.
Businesses will have to navigate an increasingly unpredictable global trading environment. The uncertainty itself, more than the tariffs, poses the greatest threat.
This instability will disrupt sectors, supply chains and investment decisions, creating economic consequences that remain difficult to fully assess. Irish trade is entering a period of known unknowns. Most analysis is, by its nature, built on past trade changes.
However, we have little modern experience that serves as a reliable guide for the impact of tariffs of this scale and scope. It is a mistake to look back to the 1930s without appreciating that it was a world less globalised, with little or no diverse or integrated global supply chains.
While what is happening is concerning, it is important to keep the size of the challenge in perspective. The new tariffs will cover 25 per cent of Irish-US exports and are on top of existing tariffs, increasing the effective tariff rate by 5 percentage points to 6.8 per cent.
Based on current Irish-US customs trade data, this would be equivalent to a tariff increase in cash terms of about €3.6 billion. This would result in a net overall export impact of about 1 per cent in the short term. If further products are removed from the exemption list, the impact could rise to 3 per cent of total Irish exports in a worst-case scenario. Businesses will be forced to think about how they may diversify markets, but those impacted by the current tariffs already do.
If you followed Trump’s arithmetic and logic of how he applied tariffs, Ireland, if we were outside the European Union, could have faced a tariff of 35 per cent – thankfully, we are on Team EU, and that’s not the case.
However, we must be conscious that the UK has a tariff set at 10 per cent, which could potentially impact some of our competing export sectors, such as food and drink. Furthermore, if clarity is not provided regarding the implications for goods travelling over the Border, it could undermine the Windsor Framework.
Given its size, the EU holds more strength than any other market to stand up to US tariffs. Consensus, of course, will be difficult, but timing will be a significant determining factor in the overall impact. While the short-term effects are concerning, the bigger challenge is whether these tariffs will last for years. Over time, the negative impact on Irish exports to the US could grow and become permanent.
This puts greater urgency on the type of response we see at the European level.
Ibec has been very clear: the Government and the European Commission must act with urgency to find a negotiated solution with the US administration. In doing so, the Government must also work with businesses to assess the potential consequences for the Irish economy resulting from the imposition of US tariffs and the likely EU response to these tariffs.
The Government must advocate for a proportionate and measured EU response, informed by a detailed analysis of supply chains, strategic considerations and the broader implications of any retaliatory measures.
Fortunately, Ireland’s fiscal position offers some degree of protection. Among developed economies, Ireland has a debt level around the global average and a fiscal surplus that exceeds that of most advanced economies. These financial buffers provide us with some ability to absorb the impact of economic slowdowns.
However, there are some sectors feeling the acute impact already. There needs to be swift action to support them. Drawing lessons from our Covid-19 and Brexit responses, the domestic policy focus should be on supporting enterprises most affected by these tariffs. This includes implementing time-bound, short-term working supports to maintain employment levels, as well as measures to enhance productivity and access to alternative markets.
The US itself will face challenges in quickly substituting many affected goods, particularly intermediate products. With US manufacturing job vacancies already at about 482,000, domestic capacity constraints will make immediate production replacement difficult. Given this reality, companies will be cautious, hesitant to make rash decisions to restructure supply chains, especially amid significant uncertainty over how long these tariffs will remain in place.
It might be a cliche, but every crisis presents an opportunity. Now is the time to double down on efforts to enhance business competitiveness at both the national and EU levels. This means addressing business costs, reducing regulatory burdens, accelerating infrastructure development, and investing in skills, artificial intelligence and innovation.
These steps will be critical in strengthening our productivity and resilience as we navigate this evolving international order, with the real prospect of a more united and stronger Europe as a result.
Danny McCoy is CEO of Ibec
