In the middle of next week – on April 2nd – US president Donald Trump is set to unveil what he calls the “big one”, a package of tariffs aimed at remaking the world trading system and America’s position in it. However, we still have little enough indication what shape this will take – indeed, the Trump administration itself looks to be making it up as it goes along. This means planning for how to react is difficult for Ireland – and for the EU as a whole.
Ireland, as a small trading nation heavily reliant on US trade and investment, is particularly exposed. Senior Government Ministers have been correct to try to prepare the public and businesses for the prospect of significant economic cost. Speaking on RTÉ radio on Sunday, Minister for Finance Paschal Donohoe warned that in a bad scenario there could be a hit to jobs and growth and that plans for the public finances could have to be redrawn.
All this is sensible, though it is worth noting that most of the parties in the general election campaign – including Fine Gael and Fianna Fáil – were unwise to dangle so many promises in front of the voters.
For this reason – and because the public never welcomes bad news – the Government may pay a political price in adjusting its plans. There is not much point in doing so yet, with so many uncertainties about what is to come. But by summer the scale of the risks being faced should be clearer. Central to this will be whether we are facing a short if disruptive period of trade tensions, or something more prolonged and fundamental.
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Donohoe was correct yesterday when he underlined the importance of sticking with State investment projects in housing and other key infrastructure to underpin competitiveness, though the Government also needs to tackle delivery issues with these. But this may mean trade-offs in other areas of spending and tax and it remains to be seen how cohesive the Coalition will be. It has significant cash resources and – fortunately – a forecast budget surplus – but a big hit to corporate tax revenues would significantly alter the outlook for the public finances.
Great care will be needed in handling all this. There must be some hope that the risks to the US economy of this extraordinarily ill-advised tariff policy will limit what is announced, or at least its duration. But we still don’t know – and even after April 2nd we may not have full clarity.
Ireland is exposed because of the reliance of our domestic exporters on the US market, the huge pharma sales from Ireland back to the American market and the wider risks if a full-scale trade war breaks out. It is at risk of being singled out by Washington.
A worrying period lies ahead and it is difficult to see the economy emerging without some significant damage.
