John Whelan: EU should not use trade 'bazooka' in response to US tariffs

The early word back to Brussels from most member states was to hold back while the implications for each product affected are being assessed.

Italy’s prime minister Giorgia Meloni warned against a “vicious circle” of trade escalation, and French prime minister François Bayrou has accused the European Commission of “hitting the wrong targets”.

Taoiseach Micheál Martin has criticised the executive for resorting to its retaliation playbook from a similar trade fight during Donald Trump’s first term as US president — when our whiskey and butter exporters took a significant hit.

The French, Italians, and Spanish were equally worried about the Brussels-recommended 50% tax on American whiskey, which appears to have been leaked to the US officials.

Trump’s threatened tariff of 200% on European wine, champagne, and other spirits, if the EU went ahead with retaliatory tariffs on US whiskey products, has focused the attention of top wine producers in Europe who could face crippling costs that would hit smaller wineries especially hard.

'Hammer blow'

Gabriel Picard, who heads the French Federation of Exporters of Wines and Spirits, said 200% tariffs would be “a hammer blow” for France’s industry, whose wine and spirits exports to the US are worth €4bn annually.

The type of EU response on tariffs has added complications for Ireland, in that the British government looks likely to take a different approach to that in Brussels.

During Trump’s conversations with British prime minister Keir Starmer in the White House, the US president suggested Britain could avoid tariffs if they can strike a trade deal. 

Downing St appears to be following this path, announcing it will be “pragmatic” in the face of steel tariffs by “negotiating a wider economic agreement with the US to eliminate” tariffs.

If this were to come about, Ireland's trading with Britain and Northern Ireland would be even more complicated than at present

The main impact would be on imports, where retaliation tariffs by the EU could push an average 25% cost premium on goods from the US — with no cost increase to imports into Britain.

Switching their sources of imports to Britain may be the only viable answer for Irish companies to keep costs down. 

Inevitably, disruption to supply chains will occur as Ireland's agri-food and pharmaceutical industries are interlinked in many respects.

Windsor Agreement

For Northern Ireland companies, the benefit of the Windsor Agreement would continue to be relevant — giving them the best of both worlds.

The present pause by the European Commission gives some room for reflection and perhaps an opportunity for a different strategic approach to handling the tariff trade disagreement with the US to be devised.

Bear in mind that the US treasury secretary, Scott Bessent, and  Trump have both indicated countries can avoid upcoming tariffs if they meet the US demands.

Rather than continue with the playbook the EU used last time Trump was president, a pivot to offering to eliminate EU tariffs on imports of US cars and trucks would meet one of Trump’s long-term grouches.

Currently, the EU currently imposes a 10% tariff on car and truck imports — while the US levies only 2.5%

There is little logic in maintaining this unequal and obvious irritant to trading relationships, particularly as there is very little danger for European manufacturers involved, as vehicles designed and made in the US do not attract EU consumers.

Moves such as this may be necessary to prevent a much wider and damaging trade war moving from goods trade to digital services — which was a subject of Mr Trump’s executive order on February 21, setting out the US administration plans to respond to the EU digital service taxes targeted at US companies.

Currently in the firing line are France, Austria, Italy, Spain, Turkey, and Britain, who have introduced digital taxes.