Paul Hosford: The game of roulette is sure to continue

Irish Examiner

6 days ago

And so the Donald Trump tariff roulette ball lands on 15.
That is the percentage rate which EU and US goods will be subject to after weeks of showdown talks between the two parties.
The deal will impose 15% tariffs on almost all European exports to the US, including the likes of cars. It brings what the government here is calling clarity, and avoids a 30% trade war between the two largest trade partners in the history of commerce.
Privately, the message is similar across the board: it's not great, but it's not as bad as it could have been, which in an Irish context will mean tighter belts, but more of a watching brief in this year's budget.
Most around the Irish government are of the opinion that the impact of tariffs will probably not be seen in its entirety this year, given the late stage at which the tariff framework has been agreed. What happens from here on out is where the challenge lies.
Last week, the Government released its summer economic statement, which outlined a total budget package of €9.4bn. Included in this is €1.5bn in tax cuts and €7.9bn in increased spending.
Though how much of that is already accounted for was not clear as public expenditure minister Jack Chambers and finance minister Paschal Donohoe released the document last Tuesday.
The message from Mr Chambers has been that spending needs to moderate, particularly in a day-to-day sense.
US president Donald Trump with European Commission President Ursula von der Leyen at the Trump Turnberry golf course in Scotland last Sunday. Picture: Jacquelyn Martin/AP
The Government has been quick to play down the idea that October 7 will see an austerity budget, but it will probably be the closest that a generation of taxpayers can remember. This will be far from those swinging days of cuts and protests and febrile demonstrations, but it will not bring with it a huge expansion of spending.
In part, that is because the budgets of recent years have seen a huge expansion of public expenditure. In Budget 2020, passed in October 2019, there was a total gross voted current expenditure of just under €62bn.
Flash forward to last October, and that figure stood and a little over €90bn. The state cannot realistically continue to grow at a rate of tens of billions of euro in baked-in spending every five years. Some moderation was always going to happen.
Beyond that, there is the simple fact that nobody knows whether this 15% tariff is here to stay. Given the continuing rate of change within the Trump administration on the issue of tariffs, there is no guarantee that we won't be back worrying about the future face of trade between the EU and the US in mere months.
Who is to say that the next time Mr Trump has a domestic issue to quell, a 30% tariff is not back on the agenda?
The summer economic statement published last week was done so on the basis the tariffs would be 10%. Ireland does two sets of economic projections a year in April and October, and so last week's figures were based on the situation as had been the case in April.
The document itself says that, should the tariff situation worsen, there would be a need to look at Ireland's economic model. The document said that if the tariff landscape deteriorates, the government would "recalibrate" its fiscal strategy, reducing the quantum of the budgetary package.
While 15% is not the worst spin of the roulette wheel, more challenges lie ahead.