Ireland in trade war firing line

The Telegraph observes that ‘no other country in the EU fears Donald Trump’s tariffs and the consequences of his global trade war more than Ireland’, while The Irish Times calls the use of tariffs to pressure these operations to relocate to the US ‘a genuine, keep-people-awake-at-night, present-the-government-with-appalling-alternatives crisis’.

If Ireland’s globalised, business-friendly economy is the basis of current anxieties, the country also knows the downsides of tariffs only too well. Heavy protectionism was central to Irish industrial policy from the 1920s to the 1950s, leaving the country an economic backwater until the approach was abandoned in the 1960s.

Scenario planning

Accountants can expect to find themselves on the front line as a new chapter on tariffs is written, even if the implications seem yet to sink in for many. An ACCA Ireland survey in April found that 72% of businesses here have not taken any steps to mitigate the potential impact of tariffs and only 15% had undertaken any risk analysis around them. Despite this apparent lack of concern, 36% believe government supports will be required if the new tariff regime hits hard.

Stephen Noonan, head of ACCA Ireland, says the findings ‘shine a light on the need for businesses to scenario-plan to support operational continuity and growth’.

The 2020s are not the 1930s and the complexity of applying tariffs across highly integrated, globalised supply chains has been noted in many quarters, underlining the significant role for the finance function. PwC drills into some of the complexity facing companies reporting under US GAAP in its coverage of the accounting implications of tariffs, arguing they ‘may affect operating results, liquidity and financial reporting’. Those in the multinational sector are likely ahead of their domestic peers in recognising this, if only because they share the headache with their transatlantic colleagues.

Bloomberg Tax said in early April the tariff announcements were ‘set to ripple throughout US companies’ financial statements’. Its advice for those impacted was to ‘maintain strong financial guardrails and consistent reporting judgment’, particularly as the question of disclosure to investors came into focus.

Paddy Stapleton, head of tax at RSM, agrees a strategic response is imperative for the longer term. ‘While the new tariff measures create immediate cost pressures and operational uncertainties, proactive strategies such as revising transfer pricing policies and diversifying markets and supply chains can help mitigate long-term risks,’ he says. RSM points to temporary pricing adjustments, supply chain rerouting, and changes to invoicing structures as significant measures that should be considered (see box for more).

No single answer

A further complication for Irish businesses is potential disparities between how the Republic of Ireland and Northern Ireland are treated by the tariff regime. Even if this significantly favours Northern Ireland, Grant Thornton’s chief economist Andrew Webb believes the business consequences will be limited. ‘Some activity may shift north, but don’t expect a major rerouting,’ he says. ‘With trade policy changing fast, few will bet heavily on stability.’

As to how businesses across the island can navigate the choppy waters ahead generally, Webb says there is no single answer. ‘Some firms will seek to scale through M&A, others may rework supply chains or seek new markets, and strategic partnerships might gain ground,’ he explains. ‘Pricing, margins and exposure are back under the microscope until this storm passes – and that may take some time.’

Adding to the stormy conditions is the limited scope of tariffs to effect the positive change the Trump administration seeks from them. As far as the global tech sector is concerned, EY partner Grit Young observes that ‘much of the world’s technology supply chain, especially around consumer devices, is not easily moved. It relies on significant knowhow and the right type of labour and skills.’ A similar state of affairs prevails in the pharmaceutical industry.

10% baseline

While the most extreme tariffs are on hold for now for the EU until some time in July, businesses must still contend with the 10% baseline tariff introduced on 5 April for all goods coming into the US from abroad (albeit with pharmaceuticals currently excluded entirely).

RTE reports that a mixture of advanced shipping and cost sharing has been favoured to date by Irish exporters to the US. Things don’t always go to plan, however. Kerrygold owner Ornua’s attempt to build a stockpile of its in-demand cheese and butter products in the US earlier in the year was stymied by trade buyers quickly snapping them up.

A deal that can assuage White House’s concerns and provide an off-ramp for escalating trade tensions is the hope of most business leaders. However, President Trump’s famously mercurial and capricious approach to policymaking means any outcome is possible – from digging in resolutely on tariffs to moving on indifferently to another policy concern. An unstoppable economic force appears set to meet an immovable political object. It may all end with a whimper – or a bang.