Diverted goods from China risk 'flooding' EU Market in wake of US tariffs

Irish Examiner

16-07-2025

Ongoing trade tensions between the US and the rest of the world could result in diverted goods flooding the EU market, the Nevin Economic Research Institute (NERI) has warned.
Speaking at an Oireachtas joint committee meeting on the impact of tariffs on the Irish economy, co-director of NERI Tom McDonnell said that in addition to rising prices, falling productivity and a likely spike in unemployment, US tariffs could also see an over-concentration of goods from countries like China entering the European market.
"A further issue to consider is the extent of diverted exports from tariff-hit countries," Mr McDonnell told committee members.
"For example, diverted goods from China risk flooding the EU market.
In addition, the NERI co-director warned that increased protectionism will likely distort production and resource allocation, as well as erode competitiveness and ultimately generate welfare losses on both sides.
"These effects are magnified if the affected countries retaliate," Mr McDonnell added.
Recent years have seen cheap Chinese goods from retail giants Shein and Temu swarm markets across Europe and the US, with the Trump administration scraping a loophole allowing goods under a certain value to enter the US from China without any import tariffs.
This is likely to prevent discount Chinese retailers from inundating the US, while in Europe, current exemptions mean Temu and Shein can still operate tariff-free once the value of the import is under €150.
Many EU merchants fear this could lead to Temu and Shein dumping even more cheap products on European markets, putting home-grown companies under further strain as they already grapple with US levies.
Ongoing negotiations
US President Donald Trump said he is still open to more trade negotiations with the EU after announcing over the weekend a 30% levy on EU imports that will kick in on August 1 if the two sides fail to agree on a better deal.
Mr McDonnell said that the sectoral impacts of the tariffs will largely depend on the characteristics of the goods in question, but that pharmaceutical goods were unlikely to see much reduction in export volume in the short run due to their inelastic nature.
However, he warned that short-term job losses were more likely in the food and drink industries as they are less essential and compete with more substitutes.
The NERI co-director also said an escalating trade war would further expose the Irish economy, with a different tariff for Northern Ireland and Scotland creating a competitive disadvantage for whiskey produced in the Republic.
"Escalation of protectionism to include pharmaceuticals or services would particularly hit Irish growth prospects and the future trajectory of the public finances," Mr McDonnell added.
While reciprocal tariffs will further damage the EU and Irish economies, there may nevertheless be strategic advantages to responding in kind, the co-director said.
"Ultimately, any deal with this administration is unlikely to be superior to that offered to the UK, which was a blanket 10% tariff on goods imports.
"Crucially, any deal should not be an excuse to reduce standards, whether labour, environmental or otherwise," Mr McDonnell concluded.