Navigating US-EU trade policy shifts

The week in summary 

Last week, President Trump imposed 25% tariffs on all steel and aluminium imports, prompting the EU to consider retaliatory tariffs on up to €26 billion of US products. The EU’s aluminium sector has been struggling, with producers losing significant market share over the past decade. Production has not recovered since the COVID-19 pandemic, exacerbated by high energy prices, weak demand, and cheap imports from Russia and other regions.

The European Union (EU) is launching an investigation into the aluminium market to protect its industry from a surge in cheap imports displaced by tariffs imposed by President Trump. The European Commission will announce the probe, which aims to verify the rise in imports and cover all trading partners. The document indicates that the recent 25% tariffs on aluminium announced by the US president are “likely to worsen the situation further”, which is already struggling with high energy prices, sluggish demand, and cheap imports. If the probe identifies an increase in aluminium imports, Brussels will impose countermeasures and tighten loopholes on its steel import tariffs. 

CSO reports

In January, Irish exports to the US surged by 81% compared to the same month last year, driven largely by a 68% increase in medical and pharmaceutical products. The Central Statistics Office (CSO) reported a goods trade surplus of €12.2 billion, with exports to the US totaling €11.7 billion, making up 48.4% of total exports. Imports from the US also rose, accounting for 19.7% of total imports.

The surge in exports is partly attributed to companies stockpiling goods in anticipation of tariffs imposed by the Trump administration. Despite the volatility of monthly figures, the increase in exports was significant, particularly in pharmaceuticals.

Pharmaceutical industry comments

Pharmaceutical companies are urging the Trump administration and EU officials to exclude medical goods from the escalating tariff wars. They aim to prevent price increases on top-selling European-made medicines.

In discussions with US officials, the pharmaceutical industry argued that imposing tariffs on EU medical goods would raise drug costs and limit patient access. This would undermine the goals outlined in President Trump’s executive orders on drug pricing and improving Americans’ life expectancy, according to several industry sources familiar with the talks.

UK-US trade relations

UK Business and Trade Secretary Jonathan Reynolds will meet US counterparts in Washington to advance talks on a trade deal and urge the Trump administration to exempt Britain from steel import tariffs. Secretary Reynolds will meet US Commerce Secretary, Howard Lutnick, and US Trade Representative, Jamieson Greer, for their first in-person discussions since Trump returned to office.

The US is the UK’s largest trading partner, with significant investments in each other’s economies. While initial hopes for a comprehensive free trade agreement faltered, current discussions focus on a smaller deal, possibly targeting specific industries like technology and AI.

The visit follows Trump’s recent imposition of 25% tariffs on global steel and aluminium imports. Unlike the EU, the UK has not retaliated but is negotiating an economic deal that may include tariffs. Prime Minister Keir Starmer emphasised the importance of protecting UK industries and strengthening the long-standing UK-US relationship.

Britain exports about 10% of its steel to the US, valued at nearly £400 million in 2023. In response to Trump’s tariffs, the UK unveiled a multibillion-pound plan to safeguard its steel industry.

Irish business leaders’ comments
Feargal O'Rourke, chairperson of IDA Ireland, highlighted a slowdown in foreign direct investment amid significant international trade challenges. This follows President Trump’s announcement of a 25% tariff on pharmaceutical imports to the US, which could impact multinational pharma companies in Ireland, particularly in the IDA Business and Technology Park in Garrycastle and Monksland.

O’Rourke hopes for EU-US talks to prevent these tariffs, noting that pharmaceutical production is capital-intensive and not easily relocated.

“If you look at pharma here, it’s very capital intensive, it’s very regulated, and the operations they have are well-embedded in the ecosystem here. So even if they wanted to move back to America in the morning, there’s a lead time of setting up a capital-intensive plant in a very regulated area — and then getting the people with the right skills. That takes a few years.”

O’Rourke remains optimistic about continued investment in Ireland and sees potential for a new “golden age” of international investment if current challenges are navigated successfully. “If we can get through the next 12 months and start working to sort out housing, the grid, water, I think actually we could be in for another golden era in foreign direct investment in the 2030s,” he concluded.

Irish housing crisis
The Central Bank has issued a warning that the threat of tariffs poses a significant challenge for the Irish economy, creating a landscape unlike any seen in recent years. During a media briefing, Robert Kelly, the Central Bank’s Director of Economics and Statistics, emphasised that the unpredictability of President Trump’s tariff threats adds to the uncertainty. He noted that this uncertainty is greater than that caused by the Russian invasion of Ukraine, though not as severe as the uncertainty brought on by Brexit.

Business considerations
The ongoing tariff tensions between the US and EU extend beyond direct economic impacts, creating a climate of uncertainty that complicates decision-making for Irish PLCs. These businesses are increasingly engaging in scenario planning and developing mitigation strategies to navigate these challenges. This includes diversifying supply chains, exploring alternative markets, and adjusting pricing strategies to absorb increased costs.

Despite these efforts, many firms are adopting a cautious approach, delaying major decisions until there is more clarity on the evolving trade policies. It is crucial for companies to maintain a consistent internal perspective on these issues to effectively manage risks and capitalise on opportunities.

There has been significant awareness of the ongoing trade tensions within the aircraft leasing and aviation industry given the interconnected nature of supply chains between the US and EU. AerCap, the world’s largest aircraft leasing company, purchased 150 aircraft, helicopters and spare engines last year from US premier aerospace manufacturer, Boeing. AerCap CEO, Aengus Kelly, recently stated:

“In an absolute worst case scenario, say, a 25% increase across the board on tariffs, a tit-for-tat from both sides — a Boeing 787, the price will go up by $40 million.”

Given the impact which tariffs are having, and are likely to have on many different industries, it is the expectation that companies will consider to develop internal strategies and scenario plans for this area.

Key actions businesses can take today

US import tariffs on EU goods now appear to be an imminent reality. Key actions that can and should be taken include:

• Assessing your customs data to understand your exposure;
• Determining the customs origin of goods shipped to the US to see if they are considered EU-originating; and
• Gaining oversight of the end-to-end supply chain, including having the right data, to assess the impact on material sourcing and exposure for tariffs on component parts.