After a week of heavy losses, global markets are surging. What happened?
The rebound comes the morning after an abrupt U-turn by Donald Trump over the “Liberation Day” plan for tariffs on global trade that he set out one week ago.
The reciprocal tariffs were additional levies above the 10 per cent baseline tariff that Trump proposed by way of penalties with scores of international trading partners he said were treating the US unfairly.
Such tariffs were supposed to take force on Wednesday, sending shock waves through financial markets and setting off fears of recession and a new economic crisis.
Instead of going through with this plan, the US president changed course by introducing a 90-day moratorium on the reciprocal tariffs with all countries except China.
China had vowed to “fight to the end” with big retaliatory tariffs. Now it faces a 125 per cent tariff on exports to the US. Other countries will pay the 10 per cent baseline rate for 90 days, pending talks.
Trump had previously brushed off market ructions. Why did he move so abruptly?
Trump acolytes have claimed the tariff plan was all part of a cunning plan by the leader of the world’s largest economy to recast the terms of its growing trade with the second-largest, China. But most analysts see the move as a response to tension in the market for sovereign bonds, a form of debt much like an IOU which governments issue to help pay the bills.
Because the US has an enormous public debt, it needs bond market stability to raise and refinance debt at decent prices from investors.
This week stock exchange turmoil in the market for company shares spilt over into turmoil in the market for government bonds. The US was hit hard.
Investors sent the price of 30-year US debt above the price they demand to buy the debt of Greece, which was epicentre of the euro zone sovereign debt crisis 15 years ago. In summary, Trump turned because he had lost the confidence of bond market investors
What does this mean for Ireland?
Ireland trades in a bloc with EU partners so Irish companies were facing a reciprocal 20 per cent tariff on most US exports, in addition to the baseline 10 per cent rate. EU exports of steel, aluminium and cars to the US faced a 25 per cent tariff.
Trump’s move means Irish exporters will still face the baseline 10 per cent charge but they have been spared, for now at least, the impact of the higher reciprocal rate.
His latest manoeuvre was intended to create space for talks so the pause may open to the way to some kind of an EU-US negotiation on a new deal.
What about Ireland’s pharmaceutical exports to the US?
The pharmaceutical sector was spared in the first round of Trump reciprocal tariffs, providing a measure a relief to Ireland and US drug groups with large operations here.
Still, Trump had warned repeatedly that the sector was in his sights and that tariffs were quickly coming. That may now be in abeyance as the US concentrates on the trade war with China.
But if serious EU-US trade talks follow, it seems likely that European pharmaceutical imports will be a big point of interest for American negotiators. This remains highly sensitive for Ireland because of the scale drug manufacturing and the employment and tax revenues associated with it.
Ireland will now pay the same 10 per cent baseline tariff as the UK, which was not subject to the first wave of reciprocal tariffs. Is this significant?
Yes, for the simple reason exporters from the Republic were facing a 20 per cent reciprocal tariff that did not apply to their Northern Ireland counterparts.
That raised knotty questions over the operation of the Windsor Framework, the hard-won post-Brexit deal that kept the North within the rules of the EU single market to avoid trade checks on the Border. Exports to the US from both Irish jurisdictions were subject to the same rules before “Liberation Day”. The pause restores the old regime, at least temporarily.
But this episode shows the potential for Trump’s assault on global trade to reopen old Brexit wounds. Any further differential in US tariffs applying to the EU and UK could hamper Windsor Framework operations. This remains sensitive because UK negotiators are likely to see the lack of first-round reciprocal tariffs as an opening to extract better US trade terms than the EU.
Is it feasible to reach an EU-US trade deal in 90 days?
It will be extremely difficult, not least because Trump hopes to land deals all over the world at the same time. This is to say nothing of the heated politics around trade that flow from Trump’s plan.
The turmoil unleashed in the past week has soured global relations. Even among close US allies, there is acute concern that Trump cannot to be trusted as an interlocutor. At the best of times, with goodwill on all sides, such deals are highly complex.
The EU trade agreement with New Zealand that took force in 2024 took years to negotiate. The final document ran to 4,000 pages. Compared to the US, New Zealand is a minnow with a narrower range of European trade. By contrast, the EU-US trading relationship is the world’s biggest.
Reaching an all-encompassing trade deal would be a challenge even in a time of stability, There was no EU-US trade deal after three years of talks when Barack Obama was in the White House.
