‘Trump always chickens out' is starting to look more like ‘the man always gets his way'

Irish Times

9 hours ago

Keeping The Donald happy is a preoccupation these days. Europe has promised to increase defence spending, with
Nato
head Mark Rutte buttering up the US president in a message praising his action in Iran – and later referring to 'daddy' using strong language to achieve a ceasefire between that country and Israel.
And in the economic arena, US treasury secretary
Scott Bessent
announced late on Thursday
that G7 countries had agreed to rewrite a key part of the Organisation for Economic Co-operation and Development (OECD) corporate tax deal
in the face of tax threats from Washington.
There is a familiar pattern here, with US threats based on political, military or economic muscle met by concessions from elsewhere.
The Trump trick is to successfully move the goalposts. Just look at trade. If you had said before
Donald Trump
took office that the US could impose 10 per cent in additional tariffs on most imports from the
European Union
and meet – so far – no retaliatory action from Brussels, then that would have sounded crazy.
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Now there is a fair chance that the EU will accept that these tariffs remain in place
as part of EU/US trade talks now under way
in return for Washington backing off more extreme threats.
The narrative has been, of course, that Trump always chickens out of imposing the more extreme tariff threats. He did have to pull back on his initial 'Liberation Day' tariffs and he has done
some kind of a deal with China
. Market upheavals and fears of economic damage at home do stay his hand.
But faced with the threat of 50 per cent tariffs on its exports to the US, the EU looks to be ready to do a deal which offers more to Washington than it does to EU capitals. Trump's madness wins over Brussels process.
The pressure on the
European Commission
to agree a deal is growing, and there is no cast-iron guarantee that the EU can stick together.
Germany
, where car exports are being hit hard by a special 25 per cent tariff on this sector, is pushing hard for a quick agreement. That might suit Ireland, too; though, of course, it will depend on the terms – and particularly what is said on pharma. Dublin would prefer no additional tariffs on any exports to the US, but that does not seem likely.
The other main Irish interest will be the tech sector, where there are reports of some progress as part of wider negotiations on non-tariff aspects of the EU/US deal.
The last thing Ireland wants is for the big US digital tech players with bases here to be drawn into the trade battle. That said, in the 'nothing is agreed until everything is agreed' world of trade talks, we will just have to wait and see on this one.
This week's agreement on tax – in which the US will drop a new part of its budget bill, section 899, which would have given it powers to impose taxes on investors and businesses from other countries operating in the US – is another sign of Europe accommodating Trump.
To achieve this, the other G7 countries are offering to rewrite part of the OECD corporate tax deal. This would have allowed other countries – including Ireland – to require US companies to pay top-up taxes in their jurisdiction if they did not meet the 15 per cent minimum tax payment rule elsewhere.
Agreeing the change is a notable backing down by the European members of the G7 and chips away again at the OECD corporate tax deal, painfully negotiated over many years.
The EU now looks likely to give ground on the tariffs as well, at least to the extent of accepting the 10 per cent remaining in place. This may lead to some kind of an agreement by July 9th – likely one that requires more talking in the months ahead.
And a falling-out between the two sides can by no means be ruled out, leading to Trump imposing higher tariffs to try to force more concessions. Were this to happen, the EU would finally have to respond with its own tariffs. And then we would be into dangerous waters.
Brussels and EU capitals will try to avoid this all-out trade war. But they will only do so by agreeing a deal that gives more to Washington than it does to the EU.
Talk at this week's EU summit by European Commission president
Ursula von der Leyen
that the bloc would go off and join an existing group of 11 Asia-Pacific countries – who have formed a trade partnership that the UK has also signed up to – is an irrelevant distraction.
There is nothing wrong with diversifying trade, but this looks about as convincing a negotiating tactic as the UK's talk of doing deals with far-flung countries during the Brexit process.
So the EU looks to be on the back foot. It will offer more concessions than Washington and hope that this is enough to at least extend the talks with the US, and perhaps tie down a few key areas.
Ireland has escaped the worst of the tariffs so far,
largely because pharma has been excluded, though other exports, including food and drink, have been hit by the additional 10 per cent charge.
Continuing to avoid too much economic pain would require two things. One, obviously, is the avoidance of a trade war. Ireland will argue for the quick deal. The second is some agreement in relation to pharmaceuticals which is not too punitive.
Given the scale of Irish pharma exports to the US, this is clearly the area where Ireland remains most exposed in the short term, either to tariffs being imposed or other tax or negotiated measures which mean less profit being reported here and thus less corporation tax.
And in the longer term, it puts questions over the scale of US investment here, particularly to serve the American market. Having done so well over recent years, Ireland remains in the frame here.
It is hard to see all this uncertainty being taken off the table all at once. Ireland will hope that the mood in the EU will mean some kind of deal before the July 9th deadline. Beyond that, more negotiations and questions will lie ahead. As we see with this weekend's fresh outbreak of trade tensions between the US and Canada, the path of negotiations with Trump is rarely straightforward.
Trump has tilted the pitch in his favour and will continue to push for more. And the longer-term damage he is creating to the international economy and political relations won't worry him one bit.