Since the imposition last week by US president Donald Trump of tariffs on US imports from nearly all its main trading partners – ranging from 10 per cent to 50 per cent – the most tangible impact has been a sharp fall in global stock markets. At the time of writing the US market was down 10 per cent since last Wednesday, the UK was 7 per cent lower, and China’s stock market was down 12 per cent. Who knows where they will be by the time you read this?
Stock markets are a proxy for many things but fundamentally they reflect the collective view of people who manage other people’s money for a living, and the actions of the computer programs they use to carry out trades. Most trades these days are carried out by computers that can automatically respond in 10ths of a second to the smallest changes in share prices or other variables.
The idea that national stock markets are a bellwether for the economy is increasingly out of date. Ireland is good example of this. In 1990 there were almost 80 companies quoted on the Irish stock market representing almost every area of the economy. There are now 18 companies, of which five – AIB, Bank of Ireland, Kerry, Kingspan and Ryanair – account for most of the market.
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Three of the biggest Irish-listed companies – Smurfit Westrock, CRH and Flutter – have moved their listings to the US in the past two years as part of a global trend towards fewer listed companies concentrated in a smaller number of stock markets.
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The Iseq is down by about 7 per cent, having bottomed out at 11 per cent on Monday but this tells almost nothing about the likely impact of tariffs on Ireland and much about the casino nature of stock markets.
The limited usefulness of stock markets is further hampered by the growth of private equity as an alternative home for money looking to make above-average returns. Big players in this area channel people’s savings into everything from ports on the Panama Canal to AI start-ups. The fact that some of the big private equity managers are listed on the stock market only adds to the confusion.
There is a third factor at play when it comes to Ireland, which is that the most important companies in the Irish context – the big global pharmaceutical and technology players – are quoted on US markets. Their Irish operations may be of vital importance to our national finances, contributing significantly to corporation tax and the overall tax take, but the read across from their US share price to the health or otherwise of the Irish operation is hazy at best.
How tariff chaos could affect Ireland
What the recent stock market fall mostly tells us is that mobile capital is panicking because it does not know what is going to happen. Many believed Trump would blink, but he hasn’t yet. Now they are lost.
The best guide to what happens next in the markets is the start of the Covid-19 pandemic, when global markets fell heavily but bounced back once it become clear there was a global consensus about how to respond – with lockdowns – and billions in public funds were unleashed to cushion the blow.
What markets seek now is certainty about Trump’s intentions and it is clear that the only person who knows the answer to this question is Trump. It is quite possible he doesn’t even know himself. Senior members of his administration are sending conflicting signals as to whether the US will use the tariffs to strike deals or if he is serious about reshaping global trade.
If the stock market is little more than an index of global neurosis in times like this, then how will we ascertain the impact of tariffs on the Irish economy?
In time, they will obviously start to manifest in the various economic statistics collected and published by the Central Statistics Office. Most of them are at least a month out of date. The only statistics approaching real time are inflation and unemployment, which are due at the end of the month but may not show much.
The impact may show up sooner in surveys of business sentiment, which should pick up signs of nervousness in Irish business. Prices at the top end of the housing market are another indicator given their dependence on high earners working in areas that will be directly affected by tariffs. Likewise top-end cars.
But the reality is that for the next month or so we will be flying blind. The best and only real guide will be trading announcements made by the companies themselves. The stock market serves a useful function in this regard, which is that it places an obligation on listed companies to make the market aware of significant events that will affect their share price.
There will also be some leaks, plenty of noise and much speculation.
