PoliticsAnalysis

Trump tariffs crisis: The three key issues the Irish Government now faces

As the seriousness of the situation becomes clear, it would be hard to overstate the fear around Government about the US tariffs’ implications

Taoiseach Micheál Martin and Michael McGrath, EU Commissioner for Democracy, Justice, the Rule of Law and Consumer Protection, at Government Buildings on Thursday. Photograph: Brian Lawless/PA
Taoiseach Micheál Martin and Michael McGrath, EU Commissioner for Democracy, Justice, the Rule of Law and Consumer Protection, at Government Buildings on Thursday. Photograph: Brian Lawless/PA
Pat Leahy's picture
Pat Leahy
Mon Apr 07 2025 - 07:46

There is an air around Leinster House and Government Buildings that has, over the past decade and a half or so, become familiar: the sense of a major crisis, only now beginning to unfold, whose trajectory the Government is largely powerless to influence but whose consequences it must grapple with.

Comparable events are the financial crisis of 2008 and the age of austerity that followed it; Brexit; the Covid-19 pandemic; the cost-of-living crisis of recent years. Governing in the 21st century requires an advanced degree in crisis management.

This is not a crisis of the confected or exaggerated type, like the row over Dáil speaking rights that derailed the operations of the national parliament in recent weeks and was only finally put to bed this week.

This is the real deal. It is a genuine, keep-people-awake-at-night, present-the-Government-with-appalling-alternatives-crisis, which threatens to have lasting, damaging effects on our economy and to make the State and many people within it poorer.

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When that happens, the people to suffer the most are always those who rely most upon the State – the disadvantaged, the marginalised, the old, the sick, the poor. The cost is counted out in the lives of the most vulnerable.

[ Trump tariffs: What ‘dark and damaging scenarios’ could economies face worldwide? ]

So what’s next for the Government? According to conversations with a series of senior figures this week, there are three immediate issues that now face the Taoiseach, Tánaiste, ministers and those around them.

Firstly, the Government will seek to influence the EU response to the tariffs. The EU has so far been restrained, making a virtue of the difficulty of an immediate and unified response, insisting that the bloc wants to give time and space for a negotiated outcome to the dispute.

The European Commission has responsibility for managing the bloc’s trade relations but it must nevertheless secure the assent of the member states – or at least a qualified majority of them – for any plan to impose retaliatory tariffs on US imports.

[ For Ireland, Trump’s tariffs are very bad news ]

Because member states have such diverging trade interests – Ireland doesn’t care much about cars, Germany about butter – it will not be easy for the commission to achieve agreement on a package of countermeasures. Ireland has been urging caution and consideration, while others are much more gung-ho. However, there is a growing sense in Dublin and Brussels that a signal of strong retaliation will be sent to Washington – which the EU hopes is the prelude to a meaningful negotiation.

But, officials warn, it is far from clear how interested the United States is in actually having a substantive negotiation. For a start, there are doubts about whether the US government has the capacity to conduct several separate sets of full-scale trade negotiations with different major trading partners simultaneously.

And even if the capacity were there, some sources doubt if the will is. “They’re not seeking an agreement. They’re seeking a war,” says one senior source.

Another Government insider pointed to comments by US commerce secretary Howard Lutnick in the wake of the tariffs announcement when he bemoaned the strict EU food standards that he complained were keeping American food out of the European market and, therefore, amounted to a tariff.

“They hate our beef, because our beef is beautiful and theirs is weak,” Lutnick told Fox News.

“These are the people we are dealing with,” sighs the source.

Secondly, the Government will seek to prepare the country – and itself – for tighter budgets in the year ahead. Though the Exchequer returns published yesterday showed that the Irish economy – including the parts of it that pay corporation tax – continues to power ahead, officials expect that picture to change in the second half of the year.

There is a buffer there in the rainy day funds that the Government has established in recent years to receive some of the giant surpluses. But if corporation tax collapses, they won’t last long

It would be hard to overstate the fear around Government that the cumulative effects of the tariffs already announced, those that may come in the future, the trade war that now seems inevitable and the pressure from the Trump administration on US companies to bring their profits and their taxes home will inevitably mean that the State’s finances will suffer. If it does, that will mean tougher budgets. And that inevitably means tougher politics.

How much tougher are the budgets likely to be? It’s impossible to say. Estimates vary wildly. One senior mandarin reckons that the impacts on this year’s budget will not be substantial, reckoning that it will take 18 months for the effects on corporation tax revenues to be fully felt.

Another senior official is more pessimistic. He points to a document published by the Department of Finance last year, the midterm Fiscal and Structural Plan that, among other things, sought to estimate the impact on the Government’s finances of a fall-off in corporation tax receipts, long warned of by the department.

In the most pessimistic scenario, officials modelled that impact of a return of corporation tax receipts to 2020 levels, at which time everyone reckoned corporation tax receipts were extraordinarily healthy. But if that happened, the report found, it would “open up enormous deficits on both the Exchequer and General Government bases”.

No Government could allow such huge deficits – so it would ultimately have to cut spending, or raise taxes. That is what terrifies the politicians. True, there is a buffer there in the rainy day funds that the Government has established in recent years to receive some of the giant surpluses. But if corporation tax collapses, they won’t last long.

The first budgetary battleground is likely to be the question of “once-off” giveaways that smoothed the last three budget day packages with energy credits, double welfare payments and other universal benefits.

[ Trump’s tariffs: what do they mean for Ireland and the economy here? ]

Taking away benefits is always politically hard. But certainly the case for prudence has become easier to make.

Finally, the Government must figure out how to help businesses who find themselves stranded by the Trump tariffs. Feelings across Government on the subject range from unease at calls for business supports to outright hostility. “Can’t happen,” says one of the hawks. “No Government can take the place of the United States.”

Meetings of the both Government’s trade forum and the employers and unions’ forum yesterday gave businesses the opportunity to press the case new supports. Business lobby group Ibec has already called for “time-bound short-time working supports to help keep employees connected to businesses experiencing demand shocks, as well as other measures to enhance productivity and access to new markets.” Ibec’s analysis suggested lost trade of some €4-6 billion in the coming year. However, strong opposition to wage supports in Government is certain, insiders say – not least because of worries about the Government’s own fiscal position.

[ Trump tariffs: Taoiseach plays down Covid-like job supports ]

Above all, perhaps, insiders say the Government must be prepared for more uncertainty, the defining characteristic of international affairs in the age of Trump.

On the night before Micheál Martin visited Trump in the Oval Office, one senior official confessed to extreme nervousness about the day ahead. “Anything could happen,” they said.

That remains a reasonable summary of dealing with the United States under Donald Trump. Confronted by a strong EU response, Trump could double down, or cut a deal and claim victory. He could stick 25 per cent on pharmaceuticals or he could leave them alone. Rarely has so much of the world paid so much attention to the whims of one man. Governments everywhere, not just in Dublin, must learn to contend with that.