Explained: Is the EU-US trade deal good for Ireland?
While there is still a lot to be ironed out in the trade deal between the European Union and the United States, there’s a decent level of detail that has been announced.
The deal ends months of uncertainty and avoids a full-blown trade war between the two blocs.
What’s included in the deal?
It introduces a 15% import tariff on most EU goods being exported to the US, which is half the 30% rate US President Donald Trump had threatened.
This baseline tariff will apply across the board, including for Europe’s crucial car manufacturing sector, pharmaceuticals, and semiconductors.
However, there will be no tariffs on aircraft and their components, some chemicals and generic drugs, certain agricultural products, and critical raw materials.
As part of the agreement, the EU has also committed to buying around €640 billion worth of US energy products over the next three years. This will largely involve purchases of US liquefied natural gas (LNG), oil and nuclear fuels.
While Brussels has also said it will spend at least €515 billion on American military equipment.
It’s unlikely the deal will go much beyond those sectors in terms of what the EU agrees to buy from the US. For example, it’s not expected the EU will have to commit to allowing in and buying more US beef as part of the broader agreement.
What are we still not sure about?
Some important elements of this trade deal still have to be thrashed out, such as what it will mean for the EU’s dairy and spirits sector.
Dairy and especially spirits, make up a huge chunk of Ireland’s near €2 billion in annual food and drink exports to the US, so from an Irish perspective clarity in this area will be crucial.
Essentially, we don’t know yet for example if Irish whiskey exports to America will be subject to a 15% tariff. If so, that will have significant financial implications for the many distilleries here that rely heavily on the US market.
Some sectors are also calling for clarity on whether exports going from Northern Ireland (NI) to the US will be treated differently to Republic of Ireland (ROI) exports to the US.
America and the UK agreed a trade deal in May that included a baseline 10% tariff on many goods exported to the US, and this agreement includes goods being exported from NI.
However, the dairy industry has pointed out that it operates on an “all island basis” with integrated supply chains and cross-border trade in raw milk, ingredients, and finished products.
It says that any divergence in tariff treatment between NI and ROI (for example 10% for NI and 15% for ROI) could create huge issues and added cost for processors and farmers.
Who pays the tariff?
This means American-based companies will have to pay an extra 15% in tax to the US government on any goods they buy from the EU.
These companies can either choose to absorb some or all of the cost of this extra 15% themselves, get discounts from the EU supplier they are buying from to cover the increase, or add the cost onto the price of the product, which would mean US consumers end up paying more.
Ultimately though, the Irish and EU companies selling into the US will likely take a hit with this deal. US firms buying their goods may look for discounted prices to cover the new tariff rate, while if their products end up being more expensive in US shops then sales could drop if American consumers decide they are too expensive.
So, while EU companies will be impacted financially by the new tariffs, it’s worth noting consumers here will not have to pay any more as a result. They would only need to start worrying about higher prices if the EU implemented reciprocal tariffs on US goods.
But that’s far more unlikely now we have a deal.
Is this a good deal for Ireland and the EU?
It depends on your perspective.
Right away, it takes the threat of an escalating trade war off the table.
This adds a degree of certainty for EU businesses that hasn’t been there for months.
While they were hoping for no tariffs, there was a lingering threat of 30% tariffs – which is now gone.
And while there is now a 15% tariff, at least they can makes plans in a more stable economic environment.
That’s what proponents of the deal are highlighting….it brings much-needed certainty.
There are obvious benefits for the bloc’s carmakers. Before this agreement there was a 27.5% tariff on cars being exported from the EU to the US, which will drop by 12.5.%.
The US has a €200 billion trade deficit with the EU (meaning America buys a lot more from the EU than the other way around). EU Commission President Ursula von der Leyen has accepted that deficit needs to be cut. “We have to rebalance it,” she said.
However, not everyone in the EU is happy.
Eurosceptic Hungarian PM Viktor Orbán said: “Donald Trump ate Von der Leyen for breakfast.”
French minister for Europe Benjamin Haddad said the deal is “unbalanced”.
Critics such as Haddad point out the EU is accepting a 15% tariff, while not placing a tariff on US goods entering the single market, and hasn’t leveraged the scale and power of the single market as much as it could have in negotiations.
But the dealmakers in Brussels will say the EU had much more to lose if there was no deal, given how much the bloc sells to the US, and that it’s worth making compromises to protect more than €1.6 trillion in EU-US trade every year.
What happens next?
Over the next few weeks, European Commission and American officials will flesh out the agreement made yesterday.
This is when we’ll get more specifics on the spirits sector and issues around NI/ROI exports to the US for example.
Then EU member states will have to approve the deal, which could come into effect before the end of the summer.
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