In June 2019, President Trump visited Ireland. As taoiseach, I was invited to meet him at his resort in Doonbeg, Co Clare. I thought little of it and planned to accept the invitation. I hadn’t been (and haven’t yet). What harm? My officials and advisers took a different view: Trump was visiting my country and it went against protocol for him, our guest, to decide the location for our meeting. There was also unease that he might use the occasion to promote his business, which was in direct competition with others in the region. I went with the advice and, after a bit of back and forth, we agreed to meet at Shannon airport, where Air Force One was going to land.
You can imagine what was going through my head when I saw Ursula von der Leyen, the European Commission president, Keir Starmer, the British prime minister, and John Swinney, the Scottish first minister, all lining up dutifully to meet the president at his resorts in Scotland. In fairness to them all, much has changed in six years and they follow a long line of political and business leaders who have made the trek to Mar-a-Lago in Florida for an audience.
The political deal struck by Trump and von der Leyen at Turnberry has been described as a trade agreement. It’s not. It is an anti-trade agreement. A trade agreement increases the flow of trade between two places, reducing prices and raising choice for consumers. Businesses that produce quality and affordable products gain markets and weak businesses are squeezed, thus freeing up economic resources. This agreement will result in reduced export volumes from Europe to the US and higher prices for American consumers, who must pay import taxes with their weakened dollars. It might result in more exports from the US to Europe, but I doubt it.
• Forget DC — Trump makes Turnberry the capital of the world (briefly)
The agreement made by the European Commission to buy a trillion dollars worth of American energy and military equipment cannot be enforced. The agreement is not a treaty, and will not be voted on by congress or the European parliament. The commission has no authority to tell the ESB, for example, to buy shipped-in liquefied natural gas from the US rather than from the Corrib gas field or the UK across a pipeline, as it does currently. The agreement to buy hundreds of million dollars in weapons seems to conflict with Europe’s ambition to develop its own defence industry.
In fairness to von der Leyen, she did not have many cards to play. Europe needs the US to remain committed to European security and to the defence of Ukraine in particular. It is also clear that most European leaders favoured de-escalation rather than risking a trade war that might have resulted in a better outcome. They opted for caution and climbdown. It’s understandable but I suspect next time, the decision will be different.
The strongest argument made by those who welcomed the agreement is that it gives exporters certainty and predictability, thereby protecting jobs and businesses. I hope they are right. More likely, it’s wishful thinking. How long before Trump reopens the agreement because the Europeans haven’t ordered enough oil, gas or missiles? Or decides to reopen it for another reason, perhaps a dispute over European regulation of harmful or illegal content on digital platforms? Or, as is the case now with Brazil, something that has nothing to do with trade at all? Trump is punishing Brazil for prosecuting his political ally Jair Bolsonaro. The only thing now certain about our relationship with America is uncertainty. Companies trading and investing with the US have to factor that in as a risk premium for the foreseeable future.
Europe needs to develop its own defence capabilities so it no longer relies on the US for its security. Ireland should be part of this. We do not need to join Nato — we are already signed up to Pesco, the European defence and security mechanism. Europe and the UK already spend more on defence than Russia and China combined.
More can be achieved by deeper co-operation than increased spending, although I accept both are necessary. Europe also needs to double down on free trade, making best use of its free trade agreement with places such as Japan, South Korea, Canada, New Zealand and the UK. The largest one of them all, the Mercosur deal with Latin American nations, awaits ratification. Studies show it will boost the economy, jobs, incomes and business both across Europe as a whole and in Ireland specifically.
It is opposed by farmers and for that reason by a minority of EU member states, including France and Ireland. I detect the sound of a train about to leave the station. It might be smarter to negotiate a good seat on it than to be left on the platform amid a cloud of smoke. Europe also needs to waste no time implementing an ambitious competitiveness programme.
What should it mean for the budget in October? The summer economic statement published last month assumed there would be no new tariffs. That was a strange assumption, as it was always the least likely outcome. It’s already out of date, and the government will have to revise its figures. This should not result in a tighter budget or a less generous tax package though. If anything, it should be the same or slightly bigger. That’s the correct counter-cyclical approach at a time of slowing growth and rising uncertainty.
I was pleasantly surprised to hear the chairman of the Irish Fiscal Advisory Council say something similar. Certainly, companies should not get handouts to compensate them for lost US market share or lower prices, but they should get help to become more competitive, change product lines and access alternative markets. Their workers should get help too. Many people working in manufacturing have skills that are transferable to the construction industry, which requires people to build much-needed homes and infrastructure. Schemes were already developed for Brexit and Covid, so it should not be too hard to adapt them quickly.