Trump's planned tariffs on EU goods sold to the US will impact Irish dairy industry
With Trump saying the EU does not accept farm products from the United States, he is likely to target EU dairy products with his 25% tariff, details of which will probably be announced in early April. Picture: Andrew Harnik/Getty Images
A Donald Trump-shaped cloud appeared over the Irish dairy industry last week, as he announced import tariffs of 25% would be imposed "very soon" on EU "cars, and all of the things”.
If "all of the things” include dairy products, Ireland's Kerrygold at the end of the rainbow could become much less valuable.
Importers in the USA could turn their backs on Irish butter and cheese if the price goes up 25%, and instead source it from other countries, such as New Zealand.
Last year, Europe and North America together accounted for more than 80% of Irish butter volumes exported, at prices which improved after EU butter production fell more than 2%. The windfall helped to rescue our dairy industry from what was shaping up to be a bad year.
The strength of grass-fed Irish dairy in the United States played a big role in dairy exports to North America, growing 4%, to a value of €840m, or 13% of all Irish dairy exports. It was a particularly strong year too for cheese exports to the United States.
In the Irish food and drink context, North America accounts for a €2bn share of our €17bn food and drink exports. About half of that €2bn is drinks, and 42% is dairy. Now, the large US share of that trade is threatened by tariffs.
With Trump saying the EU does not accept farm products from the United States, he is likely to target EU dairy products with his 25% tariff, details of which will probably be announced in early April.
He is unhappy generally with the EU, and specifically with it sending just over €584bn in goods a year to the US, while importing only €357bn in goods from the US.
Within that, the EU exports €38bn per year of food and agriculture to the US, but imports only €14bn of such products from the US.
If the US imposes tariffs on food from the EU, US importers bear the cost, making EU products more expensive, explained analysts at Rabobank, a major lender to food and agriculture worldwide.
And there are five ways EU companies could respond:
- Stick to their prices and shift the burden to US importers (in the case of products where demand would continue despite a price rise);
- Drop prices, to stay competitive in the US market;
- Withdraw from the US market;
- Redesign the supply chain to serve the US market from a country that’s not subject to tariffs;
- Or invest in domestic production within the US.
For the EU agri-food sector as a whole, according to analysts at Rabobank, it is agricultural machinery from Europe that would be most impacted by tariffs. Medium impact is expected for beverages, fruit and vegetables, dairy, and seafood.
The US is the EU's second-largest export partner for food and agriculture products.
The US market is attractive for EU companies because of its size, and ability to pay premium prices for value-added food products. In contrast, the US exports low-value basic agricultural commodities.
The EU has significant surpluses available for export in milk powder, processed peaches and nectarines, olive oil, and wheat. However, the EU has strong deficits in soybean, primarily used for animal feed, and imported from the US and Brazil.
In 2022, the US was the destination for about a fifth of EU wine exports, while the EU accounted for 13% of US soy exports.
EU food sectors with significant US market shares, and products which depend on competitive pricing, will be most affected by US tariffs.
That is why agricultural machinery such as tractors from Germany will be affected, because there are few other markets to replace the US in terms of demand, and the US’s own agricultural machinery industry has strong brands to replace EU products.
However, EU exporters of olive oil and vegetable seeds could maintain their prices, and hope for demand not to suffer.
And EU dairy and beverage exporters could respond to tariffs by lowering their prices to remain price competitive in the US market, while perhaps agreeing with US importers to share the burden of tariffs.
Illustrating how trade wars can snowball, Rabobank analysts said the then European Economic Community put a tariff on poultry imports from the US in the 1960s, because European farmers were priced out of the market. The US retaliated with tariffs on trucks, potato starch, and brandy. To this day, foreign-made trucks imported into the US still face a 25% tariff.
Sixty years later, a trade war could make EU livestock farming more expensive, due to higher soybean prices, warn Rabobank analysts.
To complicate matters, the EU can only purchase deforestation-free soy from the end of this year, and is likely to have to pay a premium for it.
The bigger national context for Ireland is that the US is our single biggest export market, for goods worth €72.6bn per year. Our biggest (80%) US export category is pharmaceutical products, which President Trump has already identified as a possible target for tariffs. The biopharma sector employs more than 50,000 people directly here.
