Why Trump's Tariff Game Changes Everything
Reshaping the global economic order
Tariffs as Trump's Bargaining Chip
It has been a breathtaking two weeks of Trump 2.0; here I’ve distilled a macroeconomic analysis for 1215 Tribes – there is much more happening, as you know, including the US exit from the WHO, its dismantling of what is described as the Deep State, the ditching of DEI and progress on the appointment of Bobby Kennedy Jr. Here I pause to look at tariffs at this early stage and what can be discerned from Trump’s actions. I expect to test this by way of interviewing a notable US expert over the coming days on Counterpoint at YouTube. More anon.
In past bulletins it was expected that Trump would deploy tariffs and White House power primarily as a negotiation tool, a wedge to draw concessions. This is the pattern already established, as Colombia, Panama, Mexico and Canada have experienced. Colombia and Panama caved, and for both the USA and big neighbours, there is now a one-month suspension on 25% tariffs to allow space for negotiation. That Trump blinked, I suspect, was gamed out well in advance. China has countered 10% US tariffs with 15% Chinese tariffs on key resources, including rare earth metals, and has opened an investigation into Google for anti-competitive practices.
According to Eurostat, EU exports to and imports from the USA increased between January 2022 and December 2023. Monthly exports grew from €39.6bn in Jan 2022 to €43.3bn in Dec 2022. Imports from the United States were €24.2 billion in Jan 2022, growing to €31.1 billion in Dec 2023. In January 2022 the monthly trade surplus was €15.4 billion. It hit a low of €8.8 billion in July 2022 and stood at €12.2 billion in December 2022.
EU Braces for Trump's Power Play
The EU, including Ireland, awaits in the wings as the USA's biggest trading partner and regional NATO ally.
Things are already heating up with the EU Commission dusting off its 2023 Anti-Coercion Instrument (ACI), according to what resembles a leak to the Financial Times on Feb. 5th aimed at the Silicon oligarchy.
ACI that can be targeted at US tech behemoths, right up to revoking intellectual property protections and activities like streaming services and downloads. This would put Ireland smack in the front-line foxholes given who is headquartered here.
Until Trump acts, the EU will vacillate between appeasement and this kind of sabre rattling, knowing that since the February 2022 conflict on its eastern flank, the region is economically vulnerable to the USA, especially on energy supplies and on its speed of reaction to Trump because it relies on coordination across the 27-member bloc.
As has been outlined here before, tension with a belligerent former ally may have the medium-term undesired effect of pushing the EU into creating a Eurasian economic zone with Russia, post a Ukraine settlement, one that would extend to Vladivostok on the Pacific linking tariff-free Russian natural resources to EU wealth and economic know-how and birth a Eurasian pole in the multipolar world emerging before us. This is not a given, but it is what the USA would fear the most.
Trump appears to be “flooding the zone” with multiple actions, including his intention to turn Gaza into a US territory to bolster Israeli regional security.
These are designed to keep opponents off balance and to get as much underway from his policy platform before the thick mud begins to set, a period that is thought to last 100 days.
Trump isn’t just focusing on closing borders to the fentanyl scourge and criminal immigration, as he sees it, but he clearly relishes the buccaneering economic power his desk gives him, for the time being.
This will be curtailed, however, in a few months if, as expected, lower tariffs across the board formally enter the US tax code in its budget processes through Congress.
Nevertheless, whichever way you distil the action, we have entered a world where the USA government will seek a return of capital invested in Pax Americana now disappearing before us.
In Hollywood speak, Trump is ditching long-standing US foreign policy, dragging us at warp speed into a transactional and multipolar world, being absent a sheriff and showing little regard for international agreements, procedures to resolve disputes, laws and relationships.
What Could Go Wrong?
Escalating tit-for-tat tariffs may play well initially in the unthinking American “patriot”, but a few months of sharp price rises for the US working poor and supply chain shortages for businesses and the mood will turn dark starting in its Treasury market.
Trump’s team knows well that a full-blooded global trade war risks creating the alienation of the USA and inflation at home, which would be politically very damaging.
Trump isn’t stupid; he knows all this, but I suspect he games it hoping to normalise a lower order of tariffs to contribute towards improving US debt/GDP while Musk at DOGE cuts into excesses and corruption in agencies like USAID.
The development agency, for example, paid $38m to Ben Hu at the Wuhan Institute of Virology to enhance bat viruses in so-called gain-of-function research.
President Trump's broader strategy is to use US clout and economic policy as a tool for geopolitical ends, like in border security and combating drug smuggling.
This gives him options where he can claim a win by either implementing or suspending his tariffs based on their foreign policy outcomes.
It is evident that the tariff suspension has come with US conditions.
In short, Mexico and Canada are expected to make continuous efforts to meet US demands concerning other related issues.
It is also clear the US will keep the threat of tariffs active as a means to ensure compliance and extract further concessions.
There is a mixed reaction; US Republicans will see it as a necessary step to address serious issues like the fentanyl crisis and illegal immigration, while others view it as aggressive economic policy that might break long-term relations.
Economists and trade experts have cautioned about the broader implications on trade agreements like the USMCA.
These dramatic tactics could destabilise the predictability needed for business investments; in short, trade wars are the enemy of certainty and toxic to business investment, which means toxic to research and development, to innovation and to jobs.
The use of tariffs in this aggressive and sudden manner undermines the stability of trade relations, affecting future trade negotiations with other global partners.
The strategy will encourage other countries to prepare for similar tactics in future negotiations, negatively affecting how international trade is conducted.
The Daddy of Globalism Attempts a Vasectomy
But the reality is that the daddy of globalism, the USA, cannot magic itself into isolationism by decree.
Interdependent global trading has become the norm for decades and exists upon a massive rewiring of the global economy that simply isn’t set up to deal with fortress USA, a sudden self-alienation of the world’s economic colossus.
America is a business, plain and simple, so for these reasons I expect hard negotiations, but for compromise to prevail as business sense outlasts early passions.
However, what is abundantly clear is that Trump 2.0 is a very different animal from 1.0; he’s arrived with a forensic plan and is draining the swamp, as he sees it.
It is early days for sure, but watch how other countries, mired in similar structural issues, will follow the Trump 2.0 lead.
This is very bad news for the quangos, aimless NGOs and excessive public bureaucracies that afflict many Western nations led by political classes hopelessly unprepared for the counter-revolution spreading across the North Atlantic.
This particularly includes Ireland, and we may expect some rough treatment, especially from powerful US Zionist lobbies.
On this trajectory and pace, Trump may yet cancel the bowl of shamrock at the White House on St. Patrick’s Day.
It would be a good outcome if he’d leave it at that because if this trajectory breaks out into an all-out trade war, one that makes US technology and pharma a battleground, Ireland’s modern economy, every part of it from public finances to property, will be in play.
In this extreme scenario, the Irish government's stability will be tested, as will public willingness to blindly follow the EU, which it has already done on open borders despite the Irish opt-out.
Ireland's Stall
Ireland's full-year exports to the USA in 2023 were substantial, valued at around $58.83 billion according to COMTRADE, the UN database on international trade.
Trump may decide to try to divide and conquer the EU, targeting, for example, Germany’s car industry and EU rules on food, but exercise more caution with Ireland, firstly because it is a small economy, and secondly because it is the favoured European landing zone for powerful US global behemoths and uses the low-cost model he advocates.
It will be a close-run thing, however, given the Irish establishment's treatment of the Israeli government, the hostility directed by Irish leaders towards the Trump return and the appetite in Brussels to hit US tech and pharma.
What could happen if common sense doesn’t prevail?
US tariffs would likely make Irish-made goods more expensive in the US market, leading to a decrease in demand for them, particularly in sectors like pharmaceuticals, machinery and chemicals. A reduction in exports would lead to job losses in sectors that rely heavily on the US market.
Ireland as a hub for US multinationals in Europe, due to its favourable corporate tax rates and English-speaking workforce, may start eroding. Increased tariffs would incentivise US companies to relocate production back to Uncle Sam or to other countries with less trade risk, affecting employment, investment and innovation in Ireland. Foreign Direct Investment (FDI) would, in those circumstances, decrease, as the attractiveness of Ireland as a base for US companies would be diminished, slowing Irish economic growth, reducing tax revenues and leading to less economic activity.
EU tariffs would lead to higher costs for imported goods from the US and pressurise higher inflation in Ireland. This would affect the cost of living, particularly if there's no corresponding increase in wages. Ireland might seek to diversify its trade partners to mitigate the impact of US tariffs, but this process would take a lot of time.
In the worst case, a significant fall in revenues from corporate taxes, especially from US tech giants, could lead to a shortfall in government revenue, affecting public services and infrastructure development at a time when the Irish government responses to the health and housing crises have underwhelmed at a time of largesse.
If the EU retaliates against US tariffs, there will be a broader impact on the European economy, which in turn would also affect Ireland. The uncertainty and potential for a trade war could lead to reduced consumer and business confidence, slowing down investments and economic activities.
While tariffs primarily affect goods, the services sector might also feel indirect effects through changes in economic conditions, investment climates and possibly through retaliatory measures in service trade.
Conclusion
Given these points, Ireland would need to navigate this scenario with strategic policy responses, including negotiations for exemptions or mitigations from tariffs, enhancing trade relations with other global markets and domestic policy adjustments to support affected sectors.
The situation would require close monitoring of international trade developments and proactive economic planning.
Below is a snapshot of financial markets year to date.
At this early stage and until the US hand is revealed, we simply do not know and cannot assess what will happen.
In the round, Ireland's strategic position might yet lead to a tailored response considering its unique relationship with the US, which is very different from all other EU members.
That is the hope, but hope is not a plan.
Until Trump 2.0 settles down, I’d guide caution on making any dramatic changes to assets, except for gold, which continues to strengthen, up nearly 10% from €2510 to €2758 in 2025.
If you’d like to go into more detail or undertake an overall strategic review, you can contact my financial firm Hobbs Financial Practice Ltd at +353 (45) 409354 or eddie@eddiehobbs.com.
Until next time,
Eddie