It will take some time for the dust to settle on President Trump’s seismic shift in US tariffs and for negotiations aimed at seeking exemptions of one kind or another to take place. The changes are far-reaching – affecting countries, companies, and the global system. And they were necessary. A catharsis may be disruptive, but it can also impel much-needed corrective policies.
International Trade Theory 101 is, of course, based on the premise that tariffs are a negative-sum game – everyone loses. But that assumes that there is, more or less, a balanced set of rules to begin with. The point is that, at present, there aren’t any such rules.
The trade system within which the EU, including Ireland, operates isn’t fit for purpose. It’s an amalgam of hegemonic power politics, trade and regulatory trade barriers, and a whole set of interventions that President Trump listed in detail during his speech. Also, the politics of war has shifted global engagement into the maelstrom of autarky.
To those listening in the Rose Garden, in Embassies, and in media studios, President Trump’s shift to a reciprocal tariff system must have gone down like JD Vance’s speech in Brussels. But Trump was right. Tariffs will, he believes, raise billions in additional revenues, lessening the fiscal deficit, thereby reducing foreign borrowing and debt servicing.
This, and inward investment in new factories to avoid higher US tariffs, will be the catalyst for an adjustment in the US economy that will ripple across the global system, he predicts. This adjustment happens through market expectations, driven by shifts in relative prices and competitiveness. A healthy and sustainable US economy is a necessary condition for a stable global economy.
Whatever about the precise calibration of the bands and rates, the larger reality is that President Trump’s tariff changes were necessary to move the US decisively towards internal and external balance. The problem, at least in Europe, is that the anti-Trump bias is now so deeply embedded that the conventional wisdom cannot differentiate between the likeability of the US President and the economic sense of his trade policies.
What President Trump’s speech demonstrated more than anything is that his overriding priority is America’s national interest. It’s not about being liked or applauded by countries whose values he rejects as feeble and/or malign or who, as he sees it, have been free-riding on the US. He acted on the certainty that he is accountable to the American public. Equally, he understands the necessity of exercising political leadership in effecting economic change.
The contrast with Europe could not be greater. The concept of the ‘National Interest’ has been emasculated. There is no leadership – just an insidious competition for photo ops and truly awful clichés, most notably Keir Starmer’s “Coalition of the Willing.” The UK economy is desolate, with cuts in social welfare being levied to subsidise warfare driven by economic stasis, including a crisis in the public finances.
President Trump may be proved right or wrong, but no one could say that his policies are not responsive to his US electorate and national interests, or that their implementation lacks a sense of urgency and cohesion.
This is the antithesis of the EU, whose idea of an economic strategy to mitigate ‘shocks’ is spending €750 billion on armaments.
Ireland, the most open of economies, whose business model is trade-dependent and primarily reliant on multinationals’ exports, got off lightly. US reciprocity with EU tariffs on US imports into Europe means that part of Ireland’s competitive edge in important sectors, notably Food and Drink, has been eroded. There will be wider downstream effects related to lower growth and inflationary ‘spikes’ across the EU.
We dodged a bullet in relation to Big Pharma – for the moment. But those who listened to what President Trump said about US dependence on imported medicine, especially in relation to Ireland, can be in no doubt that it’s only a matter of time.
Ireland’s business model, driven by low Corporation Tax rates on multinationals, has been good to Ireland and to Irish politicians. But it has long been vulnerable, is well past its sell-by date, and is in dire need of radical change – the kind of change, and with the sense of urgency, that President Trump demonstrated in the Rose Garden.
This ‘shock’ has been coming for years. The Irish Fiscal Council pointed to the vulnerability of a massive and growing over-dependence on a small cohort of multinationals in a small subset of sectors a decade ago. It was critiqued in the Financial Times. What was not to see?
Meanwhile, the Budget Surplus became a de facto war chest for successive elections. The Government recently woke up, by establishing two Sovereign Wealth Funds. But the delay, and the squandering of resources with no benefit to Ireland’s national interests, has been wilful.
It will take a lot more than “close coordination with our EU colleagues” and “Memos to Cabinet” to do the job that needs to be done. The torpor, complacency, and denial in which Irish politics is embedded is the polar opposite of – what was it President Trump spoke about? Oh yes, the National Interest.
Are there lessons that can be learned? Is there a ‘fix’ for what assails the Irish economy? Yes. But that, as they say, is another scéal.