The old Chinese curse that runs ‘may you live in interesting times’ holds today much as it ever did. Two days after Donald Trump announced his new tariff rates (and the international stock market when into meltdown), the air has yet to clear.
Since the Second World War, the average US tariff has sat at around 4%, so what we are seeing is a remarkable shift in post war norms. World wide it is thought likely to affect around $700b of trade. Long established trade arrangements are up in the air.
This is one reason why the markets are dipping sharply everywhere and corporate investors are looking for the reassurance of putting their money in gold as security against what is not yet (but could easily escalate into) an international economic crisis.
Trump is doing the equivalent of an economic handbrake turn which is sending investors directly for cover and without a fairly swift resolution could segue into recession territory (which would be a nightmare for a lot of countries).
Northern Ireland’s exports to the US will come under the lower 10% barrier imposed by Trump on the US, although any retaliation undertaken by the EU on the higher 20% rate imposed by the US administration could hit imports.
As John Campbell and Jayne McCormick write on BBC NI News site, in 2024, almost a third of the Republic’s total exports were to the US – worth €73bn (£61bn). Interestingly the new scenario brought two counter concerns from FM and DFM.
According to Pengelly: “Northern Ireland remains exposed to potential EU retaliation, and local businesses must not become collateral damage”, whilst First Minister O’Neill expressed concern about preserving the all island economy.
All what you might expect, although the First Minister’s party’s predecessor contribution to what is now a fairly healthy Northern Irish economy was largely focused on Northern Ireland, and rather less in the all island context.
But in spite of all the panic and worry, as Campbell notes further down, one advantage on both sides of the border is a degree of inertia that comes with the sheer scale of US on either side of the border (the island’s Pharma exports are colossal):
It’s not like there’s a load of American companies who can immediately substitute what you’re doing at a cheaper rate. What you’re probably likely to see is the volume of goods that might be sold into the US will decline just because they get more expensive.
Yet for all the fighting talk about protecting Irish jobs in the Dáil from deputies whose parties have barely ever created any in the south this reprieve is only prove to be temporary. The truth is Ireland’s share of US is so large it’s integral to US healthcare.
When the President has indicated he wants $880b of cuts in Medicare and Medicaid he’s unlikely to want to load the cost of health even higher by loading huge costs on the big Pharma companies he clearly wants to re-shore jobs from Ireland to the US.
Lawrence Lynch, Managing Director of Metatron Consulting notes:
A ‘Pharma Resilience Task Force’ and a 10-year strategy should be in the works. Tax incentives and R&D credits need to stay competitive, and it’s time to push into new markets – Asia-Pacific, the Middle East, and Latin America – instead of relying too heavily on the US.
Pharma supply chains aren’t something you just flip a switch on. The reality is companies may have to rethink where key manufacturing steps happen. Relocating parts of the process to the US could help some products qualify as ‘Made in USA’, cutting costs and avoiding tariffs.
Negotiations have been ongoing for weeks now, talks which feature both carrots and sticks (25% tariff). A limited break up of the manufacturing process could mean the transfer of a significant number of jobs back to the US without adding big costs.
Or breaking up the considerable sunk investment on the part of the Pharma companies both in terms of expensive physical plant and an enormous pool of human capital. It certainly gives the Irish government something to play for in medium term.
Ibec, the Irish employers’ group, has said it may result in a 2% to 3% decline in Ireland’s exports. As for Northern Ireland, at long last we may have a Brexit benefit, albeit one with serious downsides for companies which buy supplies from the US.
Both FM and DFM warn about potential dangers, but an opportunity may also await. It is yet to be seen whether our sclerotic Executive (it took them a year just to produce an empty Programme For Government) can bury the tribal hatchet and grab it.
What’s needed is for Ireland, north and south to stay realistic, positive, hard-headed, professional and open. And as far as it is possible in Northern Ireland to agree a common approach and stick together on it at least until we know where this lands.