As the economy most exposed to US investment and trade, it is no surprise that Ireland is urging caution in the European Union’s response to US President Donald Trump’s latest tariff threats against six of its members.
The EU will, indeed, want to leave room for the US president to back away from his latest threat. But if the Trump tariffs are imposed on February 1st, as now threatened, then the Government will realise that the EU has to respond, or appear hopelessly weak. The only question, then, is how.
The problem, of course, is that in responding to Trump, the EU will also hurt its own economy, just as the tariffs on the EU countries would hurt the US economy. But EU sources now argue that trying to mollify Trump is a waste of time.
A majority, including Ireland, believe room needs to be left for dialogue to see if some way can be found to get Trump to draw back. But if he does not, then the EU will respond.
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Trump’s move to put tariffs on six EU countries – rather than the whole bloc – is unusual and may be difficult, though not impossible, to implement. But for a president who rules in soundbites, the practicalities will not matter much. The EU, meanwhile, will respond as a bloc, meaning Ireland is inevitably drawn in. And in terms of the potential impact here, the scale of escalation will be key.
While Trump can just push decisions out on Truth Social, an issue for the EU is getting agreement on what to do. For this reason, the first move is signalled as a package of €93 billion in tariffs on US imports including US-made cars, bourbon and Boeing aircraft.
[ European and US stocks fall on Trump’s tariff threat over GreenlandOpens in new window ]
This list was agreed last year but was never introduced because of the outline EU/US trade deal agreed last July. But the EU should be able to move on it quickly, given that member states have already signed up to it.
While the tariffs on Boeing could be an issue for Ryanair – it has previously said it has a fixed price contract with the aircraft manufacturer – the immediate economic impact of the other tariffs on Ireland would be limited. But it is what might come after that is of more concern.
Ireland had breathed a sigh of relief when European Commission president Ursula von der Leyen and Trump shook hands on a trade agreement in Turnberry golf course last summer. This put a cap of 15 per cent on tariffs – which are effectively import taxes – for exports heading from Ireland to the US.
This meant higher charges for some exporters, but put a cap on potential tariffs on key sectors like pharma, where Trump had threatened much greater levies..
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Trump’s weekend move, however, puts this trade deal in imminent peril. The 10 per cent tariffs he has threatened – rising to 25 per cent in June if there is no deal on the “purchase” of Greenland – would presumably be imposed on top of the 15 per cent stipulated in the trade deal.
The EU could not stand by and let this happen and the European Parliament already looks set to stall on its approval of the agreement. If the trade deal all falls apart, as could now happen, the certainty which the deal gave to Ireland and companies here will be gone. And Trump would surely respond to new EU tariffs with new tariffs of his own, applying to the whole bloc, including Ireland.
This kind of tit-for-tat trade war carries obvious dangers for a small exporting country like Ireland. Government sources have pointed out that Ireland has weathered the tariffs imposed so far without a big economic impact and in a note to clients this morning Davy Stockbrokers points to the high productivity nature of many industries here as offering protection, as well as the likely transient nature of trade disruption.
[ European and US stocks fall on Trump’s tariff threat over GreenlandOpens in new window ]
Uncertainty, however, could now build quickly if this row develops, with talks between the EU side and Trump in Davos this week likely to provide the next key marker. And as well as a trade dispute, with tariffs being imposed on both sides, there is a risk of further escalation, of particular concern to Ireland.
France and some other countries are calling for the EU to use what is called its anti-coercion instrument (ACI) – commonly referred to as the “big bazooka”. This instrument, agreed in 2023, allows it to limit access to the single market for countries seen to be engaging in coercion against an EU member state. Originally drawn up with China in mind, it could be used to target the US.
How exactly remains unclear, given it has never been used before. But the big US digital services companies, many with European headquarters in Ireland, could be targeted, perhaps – for example- via measures which limit their ability to move vital customer data back to the US. Or via measures relating to intellectual property rights. A whole range of other measures are also possible, including banning US firms from public contracts.
There is a process which can last for up to six months to impose the ACI, though this may be speeded up. For now, the EU would hope to make the threat but never have to use the weapon,
So high stakes lie ahead here, particularly if this dispute builds and moves to a wider weaponisation of economic power. A lot is at stake now over the next couple of weeks in the countdown to February 1st.
