Jim Power: Ireland must diversify as 'Taco' brings too much uncertainty

Government must step up despite Trump's policy swings

US president Donald Trump continues to cause market uncertainty, placing business planning in turmoil.

We always suspected that the second Trump presidency would be volatile, uncertain, and chaotic, but few would have guessed just how chaotic it would turn out to be, and unfortunately there is still a long way to go.

For business, for consumers, and for virtually every government around the globe, the result is huge uncertainty, and this does not bode well for future economic activity or political stability.

At the weekend, we had the spectacle of Trump announcing a 50% tariff on all imports from the EU effective from June 1, but then he rowed back a couple of days later following a fruitful telephone conversation with Ursula von der Leyen. There have been close to 60 specific tariff announcements from Trump, and the saga runs on. Strange times indeed.

Last Wednesday, the US Court of International Trade ruled that that Trump had wrongly used the International Emergency Economic Powers Act to slap tariffs on almost all of the US trading partners. Then a federal appeals court temporarily reinstated many of the tariffs. This short-term relief will now allow Trump’s appeal process to proceed. Meanwhile, the EU and China and many others will engage in negotiations with the administration in an effort to avoid a cliff edge situation in early July.

How can any sort of longer-term or indeed short-term planning proceed in an environment of such uncertainty? Personally, if I were a business contemplating an investment project or hiring more labour, I would put everything on hold, because one has no idea what type of conditions will prevail in weeks or months down the road.

One benign interpretation is that the by-now well-flogged term, ‘Taco’ president – an acronym standing for Trump Always Chickens Out - will win the day. This term coined by the Financial Times columnist Robert Armstrong is a notion that the markets and others are latching on to.

Taco is certainly influencing market behaviour. Despite the turmoil and uncertainty, equity markets ended May in decent positive territory. The S&P 500 is back at levels last seen in February, before the Rose Garden ‘Independence Day’ fiasco on April 2. If the markets believed that Trump will ultimately deliver on everything he promised or threatened, markets should be deep in the red at this stage.

If delivered, the Rose Garden reciprocal tariffs would take US tariffs back to levels last seen when the Smoot-Hawley Tariff Act of 1930 was implemented. This tariff act was designed to protect American farmers and businesses from foreign competition, but it ultimately prolonged and deepened the great depression which wiped out the 1930s. If the Rose Garden reciprocal tariffs were to materialise, the economic impact would be similar, but this possibility is not being considered by the markets. Indeed, the US consumer confidence reading from the Conference Board over the past week showed the strongest monthly rebound in four years, from a five-year low. Consumers seem to believe that Trump will chicken out. For all of our sakes, one hopes this proves prescient.

Apart from the threatened tariff, many of Trump’s other policies should give deep cause for concern. The ‘big beautiful tax bill’ that Trump is pushing through Congress would add significantly to US debt levels and widen inequality. The wild west he is trying to create in the crypto world, the world of AI, and his loose regulatory approach to the banking system should all give cause for deep concern. His two sons at a crypto conference in Las Vegas expressed a heartfelt desire to use crypto to wipe out the US banking system.

On and on it goes, and where it ends, nobody knows. Here in Ireland the threats from all of these developments are very real, but unfortunately much is outside of our control. I have spoken many times of the necessity to diversify our external trade relations, and it is good to see Government pushing hard to ratify the Canadian trade agreement, CETA; our FDI exposures; and build up the indigenous SME-dominated economy. 

To me, one of the most significant and related events over the past week was the stark warning from Uisce Éireann about the dire need for heavy investment to facilitate the delivery of Government housing targets. Hopefully, Government will now step up to the plate and do what is necessary to begin the process of addressing the housing crisis in a meaningful way.