Firms are advised to look to other markets as a new world economic order looms. Carol Lynch, Partner and Head of Customs & International Trade Services offers expert advice on how to prepare for a new reality, as featured in the Irish Independent.
With Donald Trump’s first salvos already fired in a renewed trade war, European Commission president Ursula von der Leyen has pledged “firm and proportionate countermeasures”.
Trump is now in a position to continue and expand the policies and tariffs he began during his previous term and a new world economic order looms. And it is one that will likely be good for nobody in the long run. The danger is that this turns into a damaging, long-term battle of attrition.
Trump could be succeeded by vice-president JD Vance in four years’ time. If that happens and he continues the current America First policy, international markets could be looking at 12 years of turmoil.
The key message from Carol Lynch, a tax partner and head of customs and international trade services at BDO Dubin, is to start preparing for a new reality.
“It’s what I’ve been saying to clients,” she says. “Is JD Vance next? What happens in two years’ time with the elections to congress? You can’t take a chance. You have to face what the worst-case scenario is and plan for that.”
And with a 25pc tariff on imported steel and aluminium announced this week, the gloves are off.
In response to Trump’s tariffs introduced in 2018 during his first term (which included targeted tariffs on steel and aluminium), the EU slapped duties on US products including orange juice, cranberries, peanut butter, motorbikes and bourbon.
A long-running dispute over subsidies awarded by the EU to plane maker Airbus and by the US to Boeing had ramped up tensions.
In 2019, the World Trade Organisation (WTO) allowed the US to slap tariffs on $7.5bn (€7.2bn) worth of EU goods including wine, Scotch whisky, cheese and luxury apparel.
The Scotch Whisky Association said the 25pc tariff had resulted in a 32pc slump in exports of the products to the US in the course of a year, a decline that it said cost the industry about €400m.
From June 2019 to October 2021 Irish butter, mostly Kerrygold, was hit with the 25pc tax. Ironically, a lighter levy of 15pc was applied to EU aircraft.
Perhaps surprisingly, the hit to Irish dairy was fairly negligible. The value of Irish dairy exports to North America, mostly the US, was €349m in 2018, a year when the tariff didn’t apply, and €468m in 2020 when it was in place for the full year including an increased volume of butter sales in the US, according to data from Bord Bia. Sales have since continued to top €500m.
A US-EU trade war could ultimately result in greater support and integration at the EU level
In 2020, the WTO gave the EU permission to hit US products worth about $4bn with tariffs.
And while steel and aluminium tariffs might not have a direct impact on many Irish businesses, Trump’s plan to hit the pharma sector and computer chip makers might.
“International trade, by its nature, can have a lot of changes,” Ms Lynch points out. “Brexit was the seismic change for most Irish companies in a European context.”
She is urging clients to plan for sourcing key components and ingredients from countries outside the US, and also to tap into welcoming export markets that are being targeted by Trump, such as Canada and Mexico.