“The press takes [Donald Trump] literally but not seriously; his supporters take him seriously, but not literally.” This observation back in 2016 by journalist Salena Zito has become emblematic of the once and future President of the United States. It makes it almost impossible to assess which of his apparent ‘promises’ he intends to keep – and to what extent.
The stated intention to impose tariffs on imported goods should probably be taken both literally and seriously. Trump has pledged to impose an up to 60% tariff on some Chinese imports and 10% to 20% on those from other countries, including the UK and EU. The NIESR think-tank suggests this will halve UK economic growth – already projected by the Office for Budget Responsibility (OBR) to be anaemic. Halving this would produce growth of just 1% next year and 0.75% in 2026.
Uncertainty over the details and timing of the tariffs will deter US importers from entering into medium and longer term supply contracts. Worse still, it is likely to spark a more general trade war and a reduction in global trade. Trump appears hostile in general to free trade, leading to a more isolationist and protectionist approach.
Economists tend to argue that tariffs and trade wars increase retail costs and reduce consumers’ standard of living. While Trump has suggested that tariffs will counteract domestic inflation, it seems likely to actually do the opposite. And inflation often spills over from one economy into others.
There is a more specific, but perhaps less likely, threat hanging over the UK economy. The Labour Party has a friendly relationship with the US Democrats, with many Labour members having travelled to the US to support Kamala Harris. This not only angered Republicans, but also led to Trump submitting a formal complaint, with speculation that he will find ways to punish the UK government and the UK economy in retribution.
While these factors are potentially damaging to the Northern Ireland economy, they are not cataclysmic. The impact of tariffs and a trade war on the Republic of Ireland is likely to be more severe. Almost a third of Irish goods exports go into the United States, as do 25% of UK manufactured exports. Talking more generally of European nations’ trade exports to the US, the future President said: “they are going to have to pay a big price”.
More worrying still, Trump has stated his intention to cut US corporation tax to 15% – the same as the effective tax rate in RoI. This eliminates the tax advantage that Ireland has for US businesses located there. There are almost 1,000 US companies at present located in the South, with over 200,000 people employed and a further 150,000 workers in dependent businesses.
US companies spend around €30bn annually in Ireland, as well as contributing a large proportion of the €23bn a year Irish corporate tax revenue. Ireland also benefits from the income tax revenue from employees and the VAT from companies’ spend. Even if these US corporations retain their bases in Ireland, they may still move their tax base to the US, depriving the Irish state of substantial revenues.
For the UK, the timing of a Trump election victory is unfortunate, given that most of the negative impact of Brexit will be in the future. Treasury minister Tulip Siddiq last week said that 60% of the Brexit effects are yet to be felt, with the OBR expecting the UK economy to be 4% smaller over the longer term than it would have been if the UK had stayed within the EU. It seems likely that the new UK government will be as pragmatic as possible in retaining positive trade relationships with the EU, to minimise the risks of trade isolation.
It would be wrong to focus solely on the issues of tariffs and tax in terms of future challenges. The most significant long-term impact of policy change is likely to be the ramping-up of oil exploration and the increased burning of oil, coal and gas. This will make the Paris Agreement objective of keeping global temperature warming to 1.5C unachievable, accelerating climate change, its weather impacts and more instances of costly destruction of the type seen recently in Spain.
The policy change will also entrench the US’s position as the world’s largest oil producer, while shifting the dynamics of the global energy markets – including undermining the economics of investing in renewable technologies. Investors will also be wary of foreign policy uncertainty related to Ukraine, Russia, Iran, Israel, China and NATO.
There is also a potentially important economic implication from the promise to deport the US’s illegal immigrants – many of whom are Irish or British. There are an estimated 11 million residents of the US without legal status: during the campaign Donald Trump said “let’s start with one million” deportations. If this is a serious policy intention, the mass transit of such a large population could have destabilising political and economic impacts around the world. It might, though, assist with the skills shortage currently afflicting Northern Ireland.
‘Destabilising’ is perhaps the watchword for the next period, along with uncertainty around the priorities of the new US administration. It seems reasonable to assume the second Trump term will be more tumultuous than the first, with administrative officials chosen for their loyalty and commitment to a programme of substantial economic and political reform. It will be a bumpy ride.