In the Maga movement, trade surpluses with the United States are an affront to its core ideology. And the country with the largest trade surplus with the US has the largest target on its back. In the world of Donald Trump, the bigger the trade surplus, the bigger the crime against the US. He regards a trade surplus as evidence of the US being taken for a ride. In his world, upright America plays by the rules of free trade but any country running a surplus with the US – selling more stuff to the Americans than they are buying – is a cheat. He believes the US has been naive: that it is open to free trade while everyone else imposes high tariffs on US exports.
Nothing could be farther from the truth. The world has never had lower tariffs. Between developed countries, tariffs are rarely above 2 per cent on any product. But that fact barely matters when it comes to this story.
The country that most comes to mind when the US talks about trade wars is China. Looming large over every red Maga baseball cap is the image of Chinese products flooding the US, enriching the Chinese at the expense of hard-working American families. I’m sure if you ask the average American which country runs the largest trade surplus per head with the US, the answer would be China. But it’s not. Do you know which country runs the largest trade surplus with the US per head? Yes, you guessed it. It’s Ireland.
China, with its population of 1.4 billion people, runs a trade surplus of about $294 billion (€355 billion) with the US or $210 per head. Ireland, with a population of 5.5 million, runs a trade surplus of about $31 billion with the US, translating to $5,700 per head. Ireland runs a trade surplus with the US that is close to 30 times bigger per head than China. That’s 30 times; not three times, not 13 times, but a three-with-a-big-fat-zero-after-it, times. So when the Maga men look around the globe to uncover the most egregious trade sinner, they will surely see Ireland – America’s best friend.
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This is what we are facing. How do we spin this? Trump has given his team until April to come up with a comprehensive tariff package. His team has already concluded that reciprocal tariffs won’t yield much because there are few existing tariffs between the EU and the US following decades of trade negotiations aimed at bringing down barriers to trade. Once someone told him his imagined tariffs are much lower than he thought, Trump immediately declared that VAT constitutes an unfair tax on American exporters.
VAT doesn’t exist in the US, where state sales taxes are paid when you buy something. Typically, these vary from state to state, ranging from 5 per cent to 10 per cent. In Europe, average VAT rates levied on the sale of most goods and services is 21 per cent. In Ireland VAT is 23 per cent. Therefore, Trump’s April moves are likely to focus on VAT and will use the fact that European VAT rates are significantly higher (even though they are paid by everyone on almost everything rather than exclusively on American imports) as the basis for a trade war. Expect tariffs of at least 15 per cent on all EU countries, if not more, by April.
But it is not all one-way traffic. Tariffs will raise the cost of imports in the US, damage corporate America global supply chains, prompt counter tariffs from the EU and cause world GDP to falter, much as protectionism did in the 1930s. There is no way to sugarcoat this, but Americans will suffer too. Inflation will spike upwards in the US and, if this inflation leads to wage increases, it will prompt the Fed – the US central bank – to raise interest rates. This process pits the interests of Wall Street (lower inflation and interest rates) against the interest of the ordinary working American (higher wages and income).
The face-off between the financial elite and the Maga baseball cap brigade is ultimately where the Trump presidency is going. The average American cares about jobs and the price of eggs, not Ukraine or Brussels. Nearly 100 years of relentless anti-Soviet and then anti-Putin messaging means that Americans don’t see the Russians as friends, the way they see some European countries.
For example, Irish and Italian Americans, close to 65 million people (out of a population of 340 million), have a particular fondness for their old sods. In contrast, those Americans whose people came from Russia are almost overwhelmingly Jewish emigrants who fled Tsarist pogroms and discrimination and have no romantic attachment to Russia. In fact, some of the most virulent anti-Russian Americans are Jewish Americans who associate Russia with anti-Semitism.
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When we stand back, a pro-Moscow, anti-European, inflation-inducing, elite-loving administration doesn’t look like a long-term winner. No matter how much the Maga men and the social media-adjacent billionaire boys try to portray the EU as their enemy, it will be hard to see the American public wrapping themselves in the flag over tariffs, which will only push prices up, not down. As prices and interest rates rise, the small matter of the US national debt, all €36 trillion of it, could well become a political issue again. The US is paying more in debt servicing per year than it is spending on the entire military-industrial complex – a complex that owes much of its power and budget to the notion that Russia remains the enemy.
Meanwhile, we are about to witness a mass extinction event in the never-never land that is Silicon Valley. The libertarian “Bro-tocracy”, emboldened by riches, has lined up to call for the destruction of the very state that incubated them. However, without money, these heroes are nothing but stuffed hoodies. The mass extinction event I am talking about is the realisation that the hundreds of billions of dollars invested in Silicon Valley “unicorns” is gone. Before and during the pandemic, when interest rates were at zero, billions of tech-bro money was invested in so-called unicorns, those companies “valued” on paper at more than $1 billion. The exit strategy for all this “hope” money was the much vaunted IPO or public offering. This is not going to happen and most of Silicon Valley’s unicorns will suffer mass extinction.
Only six of 400 pre-pandemic unicorns have actually had a successful IPO – and there are more than a thousand more of them queuing up. If the tech bros get 10 cents on the dollar for most of these “investments” they’d be lucky. And that’s before all the over-hyped AI crud swamps the valley.
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The message for us is that we are exposed in terms of our gargantuan trade surplus and clearly there will be tariffs. There will be a shock. But there’s so much other stuff going on in the US that the best policy is keep calm and carry on. In fact, so much is out of our control, the Irish Government should use this global crisis to get our domestic house in order, while the big lads scrap it out. As the saying goes, never let a good crisis go to waste.
