AIB report warns on economic fallout of Trump's tariff threats

Belfast Telegraph

26-05-2025

Global uncertainty over trade tensions and tariffs is expected to slow growth this year and next, with the risks heightened by the American president's bombshell threat on Friday to slap a 50% tariff on all EU goods sold into the US.
Mr Trump backed away on Sunday, agreeing to extend the deadline until July 9 for talks between Washington and the 27-nation bloc to produce a deal.
Mr Trump, who has repeatedly expressed disdain for the EU and its treatment of the US on trade, relented after European Commission President Ursula von der Leyen told him on Sunday that the EU needed more time to come to an agreement.
She asked him during a call to delay the tariffs until July, the deadline he had originally set when he announced new tariffs in April. Trump told reporters he had granted the request.
"We had a very nice call, and I agreed to move it," Mr Trump said before returning to Washington after a weekend in New Jersey. "She said we will rapidly get together and see if we can work something out."
Ms Von der Leyen said in a post on X that she had a "good call" with Trump and that the EU was ready to move quickly.
"Europe is ready to advance talks swiftly and decisively," she said. "To reach a good deal, we would need the time until July 9."
Trump agrees to delay 50% tariffs on EU imports until July 9
The euro and US dollar rose against the safe-haven yen and Swiss franc after the deadline extension.
It comes as Tánaiste Simon Harris wrote to Mr Trump's commerce secretary urging him not to hit the pharma and microchip sectors, which are of great importance to Ireland, with tariffs.
The fear and uncertainty caused by Mr Trump's extreme and unpredictable policy announcements is feeding through to dampen consumer spending and business investment growth, with both expected to cool in Ireland, according to AIB's Economic Outlook Report for May 2025.
The authors say the Irish economy has built up resilience to withstand a potential trade shock in the short term. Modified domestic demand, a measure that focuses on the so-called real economy, is forecast to grow by 2.3% this year, 2% next year and 2.6% in 2027.
The jobs market is also expected to keep growing, but slower.
AIB chief economist David McNamara said the uncertainty created by the dramatic shift in US trade policy and the responses of other key trading blocs is expected to dampen global growth this year and next, globally.
'Given the globalised nature of the Irish economy, we expect significant volatility in GDP as exporters seek to get ahead of potential trade restrictions this year. For the domestic economy we expect a cooling in growth this year,' he said.
He thinks the economy here is now better positioned to weather a crisis than during the global financial crisis.
'Ireland enters this period of uncertainty from a position of strength, with the economy growing at a robust pace in recent months, while both the public and private sectors have built up material financial buffers in recent years,' he said.
The report suggests households are building up savings in response to the uncertainty and are expected to pare back spending growth while some business sectors may delay planned investments, particularly those in export-orientated sectors, AIB's economist said.
US tariffs and future US tax policy are the main downside risks to the Irish economy. Some exporting indigenous Irish sectors such as agri-food are exposed to US tariffs, but the key risk is to multinational-dominated sectors, which account for around 12% of total employment, but 80% of the value of exports and 50% of gross national product.
There's now a heightened risk of tariffs on the Irish pharma sector, which, along with technology services, dominates multinational sector output, they say.
A hit to multinationals could spill over into domestic sector output and jobs, they say.
It comes as Mr Harris warned the US administration of the negative consequences of imposing tariffs on imported pharmaceuticals and microchips.
He has written to US secretary for commerce Howard Lutnick following the latter's instigation of two investigations examining whether the reliance of the US on foreign imports in those sectors poses a risk to national security. The outcome of the investigations could result in significant tariffs being imposed on pharmaceutical and semiconductors sold into the US from abroad.