John Whelan: Trump’s tariff damage to Ireland could be immense
Ireland's combined exports and imports across the EU totalled €126bn, well above the €87bn in two-way trade with the US. Picture: iStock
Europe’s largest economy would likely suffer another two years of recession if US president Donald Trump were to impose the pending tariffs on Mexico and Canada, according to economists from German research institute IW Köln.
They concluded that the EU as a whole could suffer a similar decline this year, and a further reduction in 2026.
The Kiel Institute reached a similar conclusion in their release last week indicating that economic growth will only stagnate in 2025 (0% GDP).
Germany’s business association, the Chambers of Industry and Commerce was even more pessimistic, expecting a 0.5% decline in their economy in 2025.
The main reasons for the downward revision are the expected US tariffs and the worsening crisis in German industry and particularly its motor industry, which relies heavily on exports to Mexico for onward shipment to the US.
But also, the industry — a major employer which is losing market share to Chinese electric cars entering the European market — has announced labour redundancies.
For now, the US has suspended tariffs on goods from their neighbours Mexico and Canada, but if Mr Trump were to follow through with his economic threat, the effects for European countries could be devastating, even if the EU itself avoided tariffs.
As Ireland depends heavily on exports to Germany, Europe, and the US, the impact of tariffs is likely to be equally severe.
The size of our exposure to trade disruption across the EU can be seen from a review of trade in the 11 months from January to November 2024 when our combined goods exports and imports across the EU totalled €126bn, well above the €87bn in two-way trade with the US.
Ireland’s direct export exposure to a tariff-damaged Canadian or Mexican economy, is relatively limited, with exports in the 11 months of last year reaching €3.1bn and €3.2bn respectively.
And any damage may be mitigated by the new EU-Mexico free trade agreement signed by European Commission president Ursula van der Leyen on January 17.
The bigger issue for Ireland, if and when the Trump administration turns its focus on applying tariffs on trade with the EU, is how big will be the tariff percentage and what products will be targeted.
Agathe Demarais, senior policy fellow at the European Council on Foreign Relations, said that Trump’s laser focus on the US trade deficit means that the EU is “likely” to be next in line.
A 10% duty on imports from the EU would likely reduce the bloc’s GDP by around 0.5-0.9%, analysts at Deutsche Bank said last week.
If 25% is applied by the Trump team and as the EU economy is expected to grow by 1% this year, this would indicate that European countries as a bloc will likely be pushed into recession, and Ireland is unlikely to escape.
Potential mitigating issues for Irish industry is the preponderance of our exports to the US in pharmaceutical products and medical devices, which typically are not price sensitive and are heavily funded by government agencies.
However, as with the tariff impact during Trump’s first term in the White House, our agrifood exporters could feel the full impact if a 25% tariff were to be applied to their exports to the US market.
The 25% tariff imposed by Trump back in 2019 was estimated to have cost Ornua about €50m and led to a significant price hike in Kerrygold butter in the US where it is the second-biggest selling butter brand.
A range of other agri-food goods from the EU were also hit with the US punitive tariffs including Irish cheese, Jameson whiskey and other liqueurs, and pork products.
Another potential source of uncertainty is the impact of Trump’s trade policies on the US dollar, which has surged in value since his recently announced tariffs.
By strengthening the dollar against the euro, exports from Ireland are effectively cheaper entering the US market.
There’s a wide band of EU trade issues that Trump may decide are targets for tariffs, but there is also uncertainty as to whether they will be maintained or shifted up or down in the course of negotiations.
Whatever their effects, there is almost no doubt that Trump’s policies, if implemented, will have an overwhelmingly negative impact on the global economy.
