ieExplains: How Trump’s tariffs put Ireland in the firing line
Trump's tariffs will disrupt world markets and, specifically, Irish business, including food and drinks firms marketing dairy and Irish whiskey, will be hit with a 20% tariff. Stock picture: iStock
Donald Trump's announcement of broad tariffs will have been watched the world over. In capitals across the globe, world leaders will have anxiously watched as the US president upended decades of global free trade in a bid to, in his own vision, make America a manufacturing powerhouse and bring wealth created by American companies back to the US.
With that money, he says, he will cut taxes and protect social protection. But what's actually going on?
Tariffs are charges on importers that are typically charged as a percentage of the price a buyer pays a foreign seller.
Current US tariff rates vary. They are generally 2.5% on passenger cars, for instance, and 6% on golf shoes.
Well, that depends. An importer could, in theory, swallow the additional cost and sell you the item at the price it was pre-tariff, but that doesn't seem like the best business model. So, in all likelihood, prices on items imported either side will go up.
When depends on how businesses both in the United States and overseas respond, but consumers could see overall prices rising within a month or two of tariffs being imposed.
During his announcement on Wednesday, Mr Trump made frequent references to the reasoning behind his plan. In a typically unfocused speech, Mr Trump said that his plan would reignite "the American dream" and was a "declaration of economic independence".
He added that other nations had become wealthy at the expense of America and that he would use the "trillions and trillions" of dollars that would "come roaring back" into the economy to reduce taxes and pay down the national debt.
That is basically the long and the short of it; Mr Trump believes that tariffs on imported goods will be paid no matter what, bolstering his coffers and allowing him to cut taxes.
He said that the North American Free Trade Agreement had cost America 90,000 factories and that the country can now no longer produce the antibiotics it needs, no longer produces ships or electronics and instead imports those products.
Overall his goal is a fundamental rewiring of the US — and global — economy by taking a much more protectionist stance and attempting to strong-arm American companies Mr Trump said that American companies had already committed to "build, build, build" in a bid to avoid tariffs.
He said that Apple has said it would spend $500 billion building in the US, along with SoftBank, Oracle and OpenAI. Chipmakers Nvidia and TSMC have also committed to building in the US, Mr Trump said.
Pharma companies Johnson & Johnson and Ely Lily, which have operations in Ireland, have also committed to building manufacturing facilities in the US, Mr Trump said.
There is, but it's not simple. In the post-war era, America built things. By the 1970s, 20 million people or so made their living in manufacturing, with around a quarter of all workers working in jobs that made planes, cars, steel and various other things that America needed. By this year, those jobs have largely gone.
Just 8% of workers are employed in manufacturing and the early century flooding of the American market with cheap Chinese goods hit industrial heartlands and America largely imports a lot of vital products like semiconductors.
So there is an argument that the US manufacturing sector has collapsed, but it is not necessarily true that that is because of free trade or a lack of tariffs. In truth, US tariff rates are low, but not that low. The average US tariff, weighted to reflect goods that are actually traded, is just 2.2% for the United States, versus the European Union's 2.7%, China's 3% and India's 12%, according to the World Trade Organization.
Ireland was not mentioned by name in Mr Trump's presentation and the (extremely qualified) good news is that the pharma sector is not going to be tariffed, for now, though there is broad expectation that it will be tariffed in future.
Instead, Ireland's exports to the US will be hit with a 20% "discounted reciprocal tariff", Mr Trump said.
This will cause major problems for a number of Irish businesses, most notably in areas such as dairy — Kerrygold is the second-biggest brand of butter in the US — and Irish whiskey. That will cost jobs and money, while uncertainty in the tech and pharma sectors will lead to delays, at best, in investments.
Overall, not great. The S&P500 opened down 4% on Thursday with benchmark indexes down more than 3% in Japan and nearly 2% in Hong Kong and South Korea. In Europe, the Stoxx Europe 600 was down more than 2%.
