Have Trump’s tariffs shot the Celtic tiger?

Near or at the very top of the list of losers is Ireland. If you want to see why, Shannon is an ideal place to go.

It was here that the Irish government set up its first freeport in 1959. It was the first step in an attempt to reverse the failed post-independence economic malaise of a twee agrarian economy that had led to decades of slow growth, mass emigration and a country that was falling ever further behind its European rivals. 

Shannon was picked because in the days before bigger jets made a refuelling stop unnecessary, aircraft from across Europe had to stop there in order to cross the Atlantic. Without those stopovers, the area faced an even grimmer future than the rest of the country. 

Well, it worked. Refuelling is no longer a problem, but Shannon remains a high-tech hub, with huge business parks and office blocks, where one of the biggest employers is aeroplane leasing. 

It is a story that has been repeated across Ireland, which has managed to become one of the wealthiest countries in Europe by attracting investment – especially from America. It has come in huge amounts.

Pharmaceutical and microchip companies abound, as do the tech giants like Apple, Amazon, Google, and Microsoft. All are attracted by a generous tax system which has driven the rest of the EU up the wall. 

Want to avoid paying any tax in Germany, France, Spain or even the UK? Base yourself in Ireland, fill your boots and the Dublin government will protect your tax status to the death against the rest of Europe. 

But there is now a big orange fly in the ointment. Ireland is dependent to a worrying degree on trade with and investment from America, just like Shannon used to be dependent on those trans-Atlantic flights.

The EU’s new Trump tariff deal is really making the Dublin government sweat. It has been running budget surpluses for years because of all that foreign tax revenue and yet the country has serious underlying economic problems, including lack of infrastructure investment and a housing crisis. 

As the Irish Institute of International and European Affairs has pointed out, there are 90 pharmaceutical plants in Ireland with sales of €44 billion to the USA, and 15 of the world’s top semiconductor supply chain firms have operations in the Republic – Intel alone has invested €30 billion in Ireland. Yet these are just the industries Trump is demanding now return to the USA.

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 Less than 15 years after having to be bailed out by its European partners (among others) during the banking crisis, Ireland is facing another possible crunch, this time without much sympathy from its European allies, which it has been deliberately undercutting for years. 

But Ireland is not alone; other countries are also going to feel the pain. The bigger a manufacturing exporter you are, the worse it will be.

 France is making a lot of noise about disliking this deal intensely, but it does not really have a dog in this fight. 35% of its exports go to Germany, Spain, Italy and Belgium, the USA is just 8% of its market and the EU is hoping to negotiate a zero-tariff deal on wine and spirits, Santé, as they say. 

But for Germany, it is another matter. America is its largest export market, although it sells far more in the rest of the EU than it does to the States. But the largest German export by far is vehicles, and those are in Trump’s sights. Just this week VW’s lorry-making division Traton said it expects sales and profits to be down 10% this year because of uncertainty and trade tariffs. 

Luxury car marques are going to suffer too. Porsche says it now expects to take a €400 million hit from tariffs, while it is already in the middle of a painful restructuring.  In a phlegmatic and very German way, its chief executive Oliver Blume announced,”this is not a storm that will pass”.

Meanwhile, BMW is expecting just a 1.5% hit to its profits. Its largest manufacturing site is already in America, which really helps.  

Germany’s other massive export industry is pharmaceuticals. Until now there had been an international agreement for zero tariffs on drugs, but Trump has just torn that up and thrown it on the fire. This will especially hurt German and other European medicine makers as they make 50% profits on sales in America compared with 25% in Europe – US drug prices are just much higher than everyone else’s.

Trump is hoping this will mean much more pharmaceutical manufacturing in the US, and certainly there will be a lot of pressure for companies to move there. 

Is any of this apocalyptic for the EU? Maybe not. GDP in the 20 nations sharing the euro currency expanded by 0.1% in the last three months – small, but better than expected, thanks to Spain, France and Ireland continuing to perform well. Firms seem to be adapting to tariffs.

The commentary from Brexiteers and other right wingers that America has won hands down and Trump has been vindicated cannot be trusted either

The US-based Biotechnology Innovation Organization has found that 94% of U.S. biotech companies expect “surging” manufacturing costs because of tariffs on imports from the EU. It adds that half of American biotech companies are now “scrambling” to find new partners, and will have to delay or rework regulatory applications, “jeopardising the pace of innovation.” 80% of biotech firms said it will take them at least a year to find new suppliers and 44% said it will take two years.

Much the same can be said about many other sectors of the American economy, especially those that use steel, copper or aluminium or source components from Europe, Japan or China. That is pretty much all of them. 

So the biggest loser from all of this is probably not going to be the EU, or even Germany or Ireland. In the end, it may well be the USA. In the 1930’s “protecting” its own industries with prohibitive tariffs turned out to be an economic and political disaster. You have to ask yourself, what has changed?