On Wednesday evening we saw an astonishing about-turn by US president Donald Trump. His decision to pause many of the tariffs he introduced with such fanfare last week for 90 days to allow for negotiation came out of the blue and ran counter to everything else he has been saying. It was also wrapped up in a further hike in tariffs on China – though as tariffs on both sides there were already high enough to effectively stop all trade, that does not really matter.
But the 90-day halt on much of the tariffs on other countries is a big move. What Trump is doing is leaving a 10 per cent tariff in place on all imports (except for those from China). Tariffs above this level announced last week are being put on hold. So the EU – and Ireland – will now face a 10 per cent tariff, rather than the 20 per cent previously signalled. At least for the next 90 days which is due to give a window for negotiation.
Tánaiste Simon Harris said this would come as a relief for Irish exporters. However his statement referred to engagement and clarification being needed between Washington and Brussels on this. Statements from the US side referred to expectations that the EU would hold back on retaliatory measures. This was all clarified on Thursday morning, when the EU delayed the implementation of tariffs it had agreed on Wednesday which were in response to earlier Trump tariffs on steel and aluminium. While these US tariffs remain in place, the EU clearly did not want to do anything to close off the route to negotiations.
So the EU tariff will fall to 10 per cent and that this rate will apply to all other countries except China for at least the next 90 days. The threat remains that tariffs on the EU could rise again if a deal is not done, renewing fears of a transatlantic trade war. For now, a 10 per cent tariff would be lot easier to cope with than a 20 per cent one for Irish food and drink exporters worst hit by last week’s move. However, it is still a significant barrier to trade and uncertainty remains.
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Also, worryingly for Ireland, special tariffs on pharma remain on the table, according to Trump at his signing ceremony last night. While perhaps not too much attention should be paid to his mention of possible charges of 50, 100 or 200 per cent, there is no doubting his determination to get -pharma investment for the US market located at home. This is partly a security argument for controlling the supply line for a vital product , as well an an economic goal. The Tánaiste said he hoped the 90-day period would give a chance to negotiate on this issue, too. But dangers remain here for Irish jobs and tax revenue.
There is no doubt that the tariff delay is a major reversal by Trump. Comments afterwards by treasury secretary Scott Bessent and other senior figures, implying that this was part of some masterplan by the president, are not in any way credible. Up to now a bullish Trump has insisted there is no going back. Now that is exactly what he is doing. Trump himself gave a more convincing explanation saying that “people were getting a little bit yippy ” and he had to show some flexibility.
Why did he do it? We must look at what happened in the last 24 hours. Trump had shrugged off the big falls in the US equity markets, even though these were causing pain to investors big and small. But overnight the US government bond market – the treasury market – had taken a hit. Bond prices had fallen and US long-term interest rates went up.
This is about as big a financial warning light as you can get. Usually when equities – or shares – fall, bond prices rise because investors buy them as a safe haven. The sell-off of US bonds pointed to a wider disposal of US assets of all types – and perhaps a scramble by some investors to raise cash. And there were warnings that this was causing big problems for hedge funds – which buy and sell actively on markets. Some kind of financial upheaval requiring a big intervention by the US central bank, the Federal Reserve Board, was feared.
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This appears the likely cause of Trump’s about-turn, though this will never be conceded by him or his team. It has opened the door for negotiations and weakened Trump’s hand in these.
Much uncertainty lies ahead – and remember, steel and aluminium tariffs remain, as do tariffs on automobiles. So does a big trade war between China and the US. But with the risks reduced a bit for now, the markets are rejoicing, in the hope that a wider global trade war might be avoided.
