David Murphy
Economics and Public Affairs Editor
The prospect of a full-blown trade war between the EU and the US was averted for the second time in less than 12 months following President Donald Trump’s dramatic U-turn on Greenland.
For Ireland, several uncomfortable truths are emerging after this week’s geopolitical chaos.
The trading relationship with the US is part of the bedrock of the Irish economic success story. It is based on Ireland providing an environment of stability for multinationals.
One of the certainties important for US corporations is the level of tariffs applied to exports shipped across the Atlantic.
Donald Trump’s threats of additional taxes would have unravelled the US-EU trade agreement brokered just last July in Scotland.
That deal was important because it was designed to draw a line under the issue of tariffs following months of threats after he took office.
The agreement included an additional 15% tariff on many goods sold to the US, from whiskey to butter.
Fortunately for Ireland, pharmaceuticals and computer chips, which represent a huge proportion of exports, have escaped any extra duties.
This week, Donald Trump warned he would impose an additional 10% tariff on exports to the US from six EU countries and the UK and Norway, following their opposition to his plan to seize Greenland.
The EU trades as a bloc, so those additional duties would have applied to all member states.
Ireland is much more exposed than other countries to trade with the US.
Last year, the Kiel Institute for the World Economy in Germany analysed the flow of trade across the Atlantic.
“A disproportionately high share of, in particular, services exports from the US into the EU goes to Ireland,” it said.
“A very large share of services” supplied by US multinationals through their affiliates in the EU were supplied through Ireland, it added.
There are 260,000 people in Ireland working for American companies. The US is the country’s single biggest bilateral trading partner, accounting for nearly one fifth of all Ireland’s goods and services exports in 2023.
One in three euro collected by the Revenue Commissioners is corporation tax – much of it paid by US multinationals. That income props up spending on public services such health, education and social welfare.
In Brussels this week, there was a weary acceptance to Donald Trump’s threat of using tariffs as a weapon again.
On the fringes of the extraordinary EU Summit, hastily arranged at the height of the Greenland crisis, observers discussed how to manage relations with the White House.
There are two camps.
The first one, led by French President Emmanuel Macron, advocated standing up to the US President and fighting fire with fire by threatening counter measures on trade.
The second camp, to which Ireland belongs, says don’t agitate Donald Trump, use diplomacy and wait for the US president’s short attention span to switch to another topic – as is inevitable.
On Wednesday, Mr Trump dropped his threat to annex Greenland following a deal brokered by NATO boss Mark Rutte which involved European countries dramatically stepping up security around the Arctic.
Despite his U-turn, EU leaders went ahead with their emergency meeting on Thursday night and considered how the trading bloc could rapidly respond to future threats by Mr Trump without having to convene another full-blown summit.
By Friday afternoon EU leaders were flooding the airwaves with promises of more defence for the Arctic region, in an effort to appease US fears over Russia or China gaining a foothold there.
The unspoken message from the summit was: this chaos might happen again and we must be better prepared.
In the new world order, investment in security is now paramount. Observers in Brussels this week were quick to highlight Ireland’s miniscule spending on defence in comparison to other EU countries, while the State’s coffers are awash with cash from US multinationals.
Crisis averted for now – but a lingering threat for Ireland remains. Economic war between the EU and the US might break out at any time and the impact could be enormous.
Economics and Public Affairs Editor
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