Firms need to treat tariffs as the 'new normal' in future planning

Trade expert warns the tariffs have garnered the US a lot of leverage globally

John O'Loughlin, global trade and customs partner at PwC Ireland; with Nicola Quinn, tax partner at PwC; Michael Harte, chief executive of Dairygold; and economist Jim Power at the PwC business leaders event in Cork on Tuesday.

Tariffs are likely to remain a feature of US trade policy for an extended period of time, and companies will have to adjust to this “new normal” as they move into more medium- to long-term planning, a global trade expert has said.

This comes following a hearing in the US Supreme Court last week which could see the tariffs implemented on all imports into the US by President Donald Trump since April ruled illegal. However, Mr Trump has other mechanisms available to impose tariffs.

Global trade and customs partner at PwC Ireland John O’Loughlin said companies often asked him what they needed to do in the short-term in relation to these tariffs and he replied, “the short-term measures are now gone”.

“Companies have moved from short-term measures into more medium- to long-term planning. That takes a little bit more time. There are areas that are not quick wins. They're more structural, supply chain and business model changes to kind of capture and mitigate against the tariffs,” he said.

Mr O’Louhglin said he believed global trade had entered a “new normal”, whereby tariffs, particularly out of the US, will remain a feature.

He pointed out this was the third US administration to implement tariffs, with Donald Trump implementing tariffs against China during his first term, and Joe Biden continuing the policy against China during his term.

However, during Mr Trump’s second term, the use of tariffs have become so much more widespread, with Mr O’Loughlin saying many in the US see them as useful to gain leverage on other countries.

"It's working from the sense that the US administration is using trade now with a lever to influence change globally,” he said. 

"I would imagine the Democrats would keep some elements of this policy into the future, because it's raising revenue, it is driving a mindset change in US multinationals in terms of how they structured their business and their manufacturing operation. Also it's putting pressure on international governments to give the US more favorable deals. So I think this is more of a long term,” he said.

There is one potential hurdle to the tariff regime Mr Trump still has to face and that is a challenge to their legality in the US Supreme Court, arguments for which were heard last week.

If they rule in favor of the taxpayer, then the US administration has a real decision to make because it reverses a lot of the work that they've done over the last 12 months.

“But it doesn't stop the US administration changing their tactic and continuing with tariffs, but introducing those tariffs by another legal mechanism,” he said.

The current tariff regime is based on powers Mr Trump claims he has to respond to emergencies. However, other mechanisms, such as Section 232 of the US National Security Act, allow the president to impose tariffs but they require investigations they can be put in place.

There are Section 232 investigations currently ongoing, which are focused on industries such as pharmaceuticals, semi-conductors, as well as aerospace and defence. Placing tariffs on these sectors could have a significant impact on Ireland.

While the pharmaceutical sector receives a lot of attention from the tariffs, the Irish food and drinks sectors are also very exposed to the tariffs.

Mr O’Loughlin likened this situation to Brexit, so there’s a “familiarity there and a playbook and a plan that companies need to look at in terms of diversification”.

"That didn't mean that they suddenly ignored the UK market in Brexit. It certainly doesn't mean that for the US market, but there's a little bit more resilience built into the Irish SME market as a result of a bit of muscle memory,” he said.

However, he warned he has seen a “little bit of paralysis” from the sector similar to what happened during Brexit, and the sector hasn't been making decisions as quickly as the multinationals.