Pause on US tariffs offers breathing space for Ireland

If Wednesday last week was what US president Donald Trump described as "liberation day" when he made his big announcement on tariff introductions, Wednesday this week brought tit-for-tat announcements on China and a 90-day pause for everyone else at a manageable 10% tariff on US imports from other countries.

For Ireland, that means that the 20% tariff charge on exports to the US will be reduced to 10% with immediate effect and will remain for at least the next 90 days.

Of course, Irish butter imports will still pay the standard $1.541/kg import tariff and the extra 10% will add another $0.91c/kg to the price of butter imported to the US.

Hectic day

Earlier in the day, the EU had issued a response to the steel and aluminium tariffs which were announced by the US president back in February.

The EU didn’t announce what goods its 25% tariff would apply to, but various media commentary highlights that it will be almost €21bn worth of products that come from Republican voting states, but excluding drink and dairy. These are scheduled to come into effect on 15 April.

A response to last week's tariff, which is now reduced to 10% from 20%, is expected to be agreed by next week.

The EU has made clear that “these countermeasures can be suspended at any time, should the US agree to a fair and balanced negotiated outcome”.

Any deescalation will be welcomed by Irish dairy farmers and exporters, as well as the drinks industry, which had enjoyed reciprocal tariff-free trade with the US since 1997.

US and China

The reduction to a 10% tariff is relatively good news for Ireland and other trade partners, apart from China, for whom the trading relationship deteriorated further on Wednesday.

China had retaliated to the US tariff announcement on Wednesday last week by increasing its tariffs on imports from the US by a further 34%. This triggered a US response which raised the tariff further on imports from China to 104%.

Early on Wednesday this week, China retaliated again, increasing tariffs on US imports by a further 50% and this in turn prompted a further response by Trump later in the day which increased the US tariff on imports from China to 124%.

At these levels, trade between both countries becomes almost impractical and where it does happen, the cost of goods still traded will increase dramatically even if businesses try to absorb some of the additional tariffs.

After a hectic day of announcements, it looks like the real trade battle between the US and China will continue and perhaps escalate further.

For Irish dairy farmers and their tillage colleagues who supply the brewing and distilling industries, the tariff reduction to 10% for the next 90 days is a welcome step in the right direction.

It creates a window of opportunity for negotiation, which the EU has requested on several occasions and the hope will be that a longer term trading arrangement can be reached as close to the previous terms as possible.

As for the US-China dispute, the prospects look bleak at present. Given the volume of trade between the top two economies in the world, the economic fall-out will not be confined to both countries, it will be global.

Anything that damages the global economy has consequences for the Irish agri-food industry which exports 90% of production. Only time will reveal what the extent of that damage will be.

The hope is that both countries will realise this and come to an arrangement that minimises the damage.

There is a precedent for this - President Trump and China agreed a “phase one” trade deal during his first term in January to settle a dispute that had run since 2018.

It is more serious this time with tit-for-tat tariff increases, but the major corporations in both countries that trade back and forth will hope that it can be done again, even if it seems unlikely at this moment.

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