The US president is at it again. Apparently frustrated with the trade talks underway with the EU, Donald Trump has threatened to impose a 50 per cent tariff on imports from the EU from June 1st.
It had been clear that the talks had hit problems due to different expectations on both sides. The US expects the EU to make unilateral concessions, reflecting what it says are its unfair trade practices over the years. The EU sees things differently and has been pushing for an agreement where both sides make concessions.
This was always going to come to a crunch at some stage. However, Trump’s move to threaten 50 per cent tariffs from next weekend still came as a major surprise, particularly as the financial markets had reacted so badly to his initial tariff plan announced in early April. It had appeared that the market reaction would be a restraint on Trump’s actions. Now this is not so clear.
That said, the prospect of 50 per cent tariffs being introduced for any length of time appears remote, given the damage it would impose on the US economy. Trump is again trying to up the pressure for some kind of deal.
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The EU should be in no rush to react in any detail. Trump will know that tariffs on this scale - effectively blocking EU imports - would not be sustainable. The financial markets are already reacting negatively. Pressure on the US president will build. The EU already has one group of counter-measures approved – and another is in the pipeline. If tariffs are imposed by the US, then EU reaction will – sooner rather than later –become inevitable. But the EU’s process driven approach is worth sticking with, as the evidence is of growing unease in the US, and in the markets, about the prospect of significant tariffs.
The latest news will be particularly unwelcome in Ireland, which is the economy in the EU most exposed to US trade and investment. A transatlantic trade war would be damaging in the short term, hitting exports in particular and also pushing up import prices as the EU responded with tariffs on the US. And there are serious longer-term issues for Ireland, too, in the agenda being pursued by the administration and the focus on producing at home for the US market – and aggressively pursuing US interests.
In the short term, Ireland will do what it can to try to talk down the EU from overreacting to Trump’s latest outburst. The ramping up of trade tensions should also remind the Government of the economic dangers it faces. A firmer message needs to be sent out about the limited room for manoeuvre in the budget. And serious thinking is needed about Ireland’s long-term economic strategy and its inability in recent years to deliver major projects, which are vital for competitiveness. The last government was guilty of complacency. This one must not repeat the same mistake.
