Exporters face double whammy from weaker dollar and tariff woes

Times

10 hours ago

Exporters to the United States are facing a potentially bigger threat to profits from a weakening dollar than they are from tariffs as the European Union seeks to complete a trade deal with the Trump administration before Friday's deadline.
The US dollar has fallen significantly from near parity against the euro this year — €1 was worth $1.17 last Friday — making Irish and European goods comparatively much more expensive in the American market.
Combined with an expected minimum 15 per cent tariff, companies that sell across the Atlantic could be facing a ­double blow to their income this year.
'Exporters to the US are adversely impacted by a dollar that is now 15 per cent weaker than at the start of the year against the euro,' wrote John Finn, managing director of Treasury Solutions, a Cork-based corporate financial management practice, in a bulletin for clients last week. 'Even a 10 per cent tariff on sales to the US means that exporters are 25 per cent worse off than they were last year. [The] currency piece seems to have been ignored.'
Such a dramatic shift in currency exchange rates over a short period has the potential to wipe out profit margins completely for exporters, especially those with unhedged exposures.
Moreover, it could also negatively affect the domestic tourism and education sectors as fewer American visitors and students come to Ireland — and those who do spend less.
The euro has strengthened so much this year as President Trump's mercurial approach to international trade relations and Republicans' deficit-driven fiscal ­policy have prompted a rotation out of US assets and into European ones. Even a steady cadence of rate cuts by the European Central Bank has not slowed the euro's upward march.
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While this has helped European equities outperform this year, it potentially creates problems for exporters, who are faced with the choice of raising prices on goods sold in the US or absorbing the losses on foreign exchange.
Meanwhile, American consumers, faced with higher prices across the economy due to tariffs on all US trading partners, will have less to spend. Yet the Irish economy has so far avoided much of an negative effect from either the strengthening euro or the 10 per cent tariffs that have been in place since April 2, mainly due to front-loading sales to the US in the early part of the year, especially in pharmaceuticals. However, the Department of Finance warned in its summer economic statement last week of a 'large adverse impact' if tariffs increased.
Ursula von der Leyen, the European Commission president, is meeting Trump in Scotland today in an effort to iron out their differences ahead of the August 1 deadline, after which Trump has threatened to slap a 30 per cent tariff on all EU goods. Reports suggest the two sides will strike a deal similar to the one Trump agreed with Japan, with a 15 per cent tariff rate on goods.
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But while at some point a fixed tariff rate on European goods will be imposed, the dollar looks set to keep falling due to the US's high deficit and ballooning debt, meaning the pain for exporters could get worse.
'The impact becomes exponential in that interest is added to debt and is compounded at a faster rate than the economy grows,' Finn wrote. 'The result? Higher long-term bond yields as investors seek to be rewarded for higher perceived risk of investing in the US. It could also lead to a substantially weaker US dollar.'