3rd October 2019

Prepare for (trade) war: EU Commissioner Phil Hogan’s first real challenge may come from DC, not London

As the Brexit deadline of 31 October looms ever larger in Ireland and Europe’s collective psyche, it’s easy to lose sight of other global economic factors at play. 

These factors have the potential to impact not only Irish trade, but to push the economic powerhouses of Europe, such as Germany, into recession, and test the EU’s Commission-elect, including Ireland’s Phil Hogan, to the limits of their ability.

One of the most threatening and destabilising is an all-out trade war between the US and EU.

The prospect of this economic conflict is not new; indeed, it has been threatened by both blocs for many years. With its roots in the collective failure of the US and EU to agree the TTIP trading agreement in 2016, tensions between both sides have escalated.

The first shots may have already been fired. Yesterday afternoon, the World Trade Organisation ruled that the EU illegally provided subsidies to European aircraft manufacturer Airbus.

This will give the Trump administration the legal backing to increase or impose trade tariffs on EU goods entering the US.

This is not a one-sided dispute, however. A similar WTO report to be published early next year is expected to find the US equally culpable in providing illegal subsidies to Boeing. That could give the EU the same legal backing required for tariffs on US goods. So far, so confusing.

While it’s tempting to view the dispute as a childish tit-for-tat squabble being played out between two global economic giants that arguably should know better, the signs suggest that both have yet to fully appreciate the consequences of their actions, with the risk that the stakes will be raised much higher in the coming weeks.

The casualties of war

On the foot of the WTO judgment, the US can impose up to $7.5 billion in tariffs on EU goods entering the country, including planes and parts, dairy products, and luxury goods. These will come into effect on 18 October. Separately, tariffs on EU auto imports are also in sight.

On a macro level, tariffs on auto imports, a sector hugely important to Germany, could push its already teetering economy into a full-blown recession. Add in the fallout from Brexit following shortly thereafter and all EU states, including Ireland, are heavily exposed to severe economic shock.

US President Donald Trump pictured in 2017 — JONATHAN ERNST/AFP/Getty Images

On an Irish level, tariffs on dairy products, such as cheese and butter, and luxury goods, such as spirits, represent a serious body blow to the indigenous food industry and their dependent rural communities.

Ireland exports about €250 million’s worth of dairy products to the US every year. The consequences of tariffs on butter and cheese will be damaging for large sections of the Irish economy and the local communities that support them.

The latest data (2017) shows exports of Irish spirits (predominantly whiskey) amounted to €1.3 billion, with the US market taking the lion’s share of €1 billion.

While whiskey produced in the Republic of Ireland will escape US tariffs for now, Northern Irish whiskey—specifically, the single malt variety—will not. That’s bad news for producers like Bushmills.

Irish liqueurs like Baileys, one of the world’s most recognised drinks brands, will also be impacted. In 2017, 1.9 million cases of Irish liqueurs were sold in the States; a 25% tariff on such a strong export will be highly detrimental to the manufacturing economy.

If the EU retaliates with its own tariffs and the spat escalates into a trade war, the US could broaden its single malt and liqueur tariffs to include all types of Irish whiskey, as well as other key export products. The consequences of this would reverberate across multiple sectors and damage the rural agricultural communities that provide the raw materials.

Peace in our time?

How can both trading blocs be brought back from the brink? Can a compromise be reached?

On the EU side, responsibility for breaking the impasse and reaching a compromise acceptable to the US and EU will fall to Phil Hogan, the EU’s new Trade Commissioner.

The challenge facing the Commissioner, fresh into the role but battle-hardened from his previous tenure as Agriculture Commissioner, will be significant. An effort at a resolution by Hogan’s predecessor Cecilia Malmstrom in July went unanswered by the Trump administration.

Hogan has already made some promising noises. As part of his approval hearing before the European Parliament on Monday, he stated:

“The United States has played a longstanding role as an essential supporter of an open global trade system…and we are ready to engage with the United States on these issues.”

Although Commissioner Hogan’s tone was conciliatory, and despite the fact that most European capitals do not relish a trade war with the US, the EU may nonetheless be forced into a retaliatory show of strength.

While an EU response, at least in the short term, is likely, the test of Hogan’s negotiating skills will be how quickly he can convince the Trump administration to pull back from an all-out trade war and reach a deal that both sides can live with.

For ‘Big Phil’, once a stalwart of Fine Gael electioneering, his current challenge will be a long way from the byroads and bothereens of Ireland. Nonetheless, these past campaigns will stand him in good stead as he seeks to face down his latest formidable opponent: Donald Trump.

Amanda Glancy 360

About the author

Amanda is Director of Policy and Campaigns at 360. She develops comms plans that are underpinned by strategic and policy considerations and achieve meaningful change. Her greatest strength is her ability to speed read, honed by many years of scanning newspapers for client coverage.

Join the Circle

Get 360’s intelligent communications updates, insights, and research delivered to your inbox every quarter.