“God be with the days” is a phrase I often heard older people use during my early years. As a student of history, I am sceptical of nostalgia for bygone eras that were usually much less glorious than imagined, but the current EU-US impasse over tariffs does make me pine away for the old world of multilateral trade talks.
I remember being involved with the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) negotiations when that diplomatic circus came to Brussels during my time there in the 1990s. Backroom deals were hammered out during all-night sessions. The Uruguay Round took eight years to complete. When it concluded in 1994, the result was a freeing up of world trade, a general reduction in tariffs and the setting up of the World Trade Organisation (WTO), of which Ireland’s Peter Sutherland became the director general.
What a different world we now live in. The decades-long liberalisation of trade has gone into sudden and sharp reverse. US president Donald Trump’s ambition to conclude 90 agreements in 90 days will clearly not be realised, but the world we knew in the heyday of the WTO may not be recoverable. Economic nationalism is now the order of the day in the United States, and others may be tempted to follow suit. Trump’s approach echoes a wider mood among Americans.
Trade negotiators usually spend their time mulling over such things as commodity codes, market access and non-tariff barriers to trade. They tend to run dogged negotiating marathons rather than blue riband sprints. It can take years to work out the details of a trade agreement.
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The European Commission has vast experience of handling trade negotiations as it is one of the commission’s exclusive competences. Its counterparts across the EU-US negotiating table are the permanent officials and political appointees at the office of the US Trade Representative. In a normal world, those two teams would have sweated out a set of compromises in the confident expectation that their political masters would eventually give a “thumbs up” to the results of their labours. Not so now.
The upheavals of Trump 2.0 may end up doing the EU a favour. Although reduced reliance on the US market would represent a painful transition, it may be a necessary one
I am sure that the two teams have explored solutions across the full range of trade-related issues. EU negotiators will have come armed with a set of concessions designed to appeal to the Americans. Sadly, however, this is not a conventional negotiating environment as Trump may well choose to disregard the advice of his negotiators. He enjoys an unmatched and unchallenged degree of authority. Last week’s letter to commission president Ursula von der Leyen read more like an ultimatum than a negotiating offer. So where is this dispute headed?
The second Trump term is a very different proposition from its predecessor during my years as ambassador in Washington. At that time, Donald Trump was a political neophyte. With the experience of four years in the Oval Office and time to reflect on what went right and wrong for him during Trump 1.0, he is now far more self-assured. His current team of advisers have less sway over him.
Trump’s belief in tariffs is not widely shared, but it is deeply held and long-standing. He is actually less ideological than many of his supporters, but is animated by a deep conviction that his country has persistently been taken advantage of internationally, and that his predecessors have been too pusillanimous to protect American interests.
Europeans see things very differently, of course. They will point to the success of US companies in Europe and the profits they generate for their ultimate ownership across the Atlantic.
[ Trump’s 30% tariffs would effectively cut off EU-US trade, Sefcovic saysOpens in new window ]
Since the so-called Liberation Day on April 2nd, the EU has acted with a commendable restraint designed to avoid an escalation of the transatlantic tariff dispute. It has patiently deferred retaliatory action, even in response to US tariffs on steel and aluminium which have been in place for months now. Even after the missive threatening 30 per cent tariffs landed in Brussels, the commission’s tempered response prioritised negotiation and presented its planned countermeasures as a last resort.
[ Is Trump’s tariffs plan working for the US? And where does it go next?Opens in new window ]
It is genuinely difficult to predict how this will land, but an all-out trade war would be a mutually damaging outcome – one that both sides ought to be keen to avoid. The odds still marginally favour a last-minute agreement, but not necessarily by the August 1st deadline. Whatever the outcome, Trump will be keen to declare victory for his “America First” policy. If agreement proves impossible, the EU will ultimately have no alternative but to hit back hard while probably delaying implementation in the hope that market reaction will soften Washington’s position and obviate the need for full-scale retaliation.
Whereas the threatened US tariffs are across the board, the EU’s reaction will target products likely to ruffle feathers in Trump-supporting communities. Selectivity is the wiser course, but it does require choices to be made, and that poses a dilemma for a 27-member union. Each member state has its own priorities on what to exclude from the EU’s retaliatory package. And the issue of transatlantic security, where the atmospherics have improved since the recent Nato Summit, will always loom over European calculations. I expect that consensus will develop around the commission’s current proposal for a €70 billion tariff package on imports from the US. That would put the ball back in Washington’s court, with unpredictable consequences. My sense is that the EU is reluctantly ready to face up to them.
These unwelcome developments are especially problematic for Ireland, given our unusual exposure to the US market. Important Irish exports like butter and sprits could be badly hit right away. Pharmaceuticals are being dealt with separately by the US, but they are clearly vulnerable too. Irish-based tech companies may find themselves blown off course by tariff headwinds.
The current standoff convinces me that the EU needs to work on building its own economic resilience. The upheavals of Trump 2.0 may end up doing the EU a favour. Although reduced reliance on the US market would represent a painful transition, it may be a necessary one and there are alternative avenues for European trade. Even if this impasse is sorted out, there is no guarantee that it will remain so. There’s a new economic zeitgeist afoot and no going back, I fear, to those old days of predictable trade negotiations and their relatively benign outcomes.
We need to brace ourselves for a rough ride and play to our strengths.
Daniel Mulhall was Ireland’s ambassador to the US during the first Trump presidency and is a consultant with Rockwood Public Affairs
