Esmond Birnie: Unequal US-EU trade deal undermines some economic rationale for the European Union and has provided UK with a Brexit gain
In 1077 the German Emperor Henry IV suffered the great humiliation of having to make a public apology to Pope Gregory VII. Henry, reportedly, knelt in the snows of the Alps for three days before he was received back into the Church.
Sometimes I think the very large anti-Brexit community within the media or academia are waiting for those who backed Brexit in 2016 to get down on their knees and wear a hair shirt, or Biblical sackcloth and ashes, and say sorry.
It is therefore perhaps not surprising that the anti-Brexiters have found it hard coming to terms with the recent EU-USA trade deal. It is not a brilliant deal from the European point of view and it suggests not only that some of the economic rationale for the European unity project is flawed but even implies the UK has made a gain from Brexit.
From the EU point of view the rather limited good news is that it could all have been worse. US tariffs have not gone up to 30% as was threatened by Trump a few weeks ago. It is notable that a number of prominent European politicians are grumbling about the deal which the EU President Ursula von der Leyden has signed up to at Trump’s Turnberry golf course. The general view in France and Germany seems to be one of great discontent.
US tariffs on EU goods go up to 15% but EU tariffs on American goods will remain minimal. This does look like an asymmetrical or unequal deal. EU steel and aluminium will be facing very high US tariffs. And Trump quotes figures well in excess of a trillion dollars as to the amount of US energy supplies and armaments which the EU will be required to purchase - it is unclear how well this will work out in practice.
It looks like trade in aircraft and aircraft parts will remain tariff free in both directions. This applies to the EU and also the UK given the US-UK trade deal in May. This is a useful outcome for Northern Ireland given the scale of our aerospace sector and the amount of work done for both Airbus and Boeing.
Under the deal, for the time being, pharmaceuticals coming into the US are subject to the 15% tariff but that sector is also the subject of a special Section 232 investigation by the Trump administration. The EU seems to think any tariffs on pharmaceuticals will be limited to the 15% rate but that may not be the American interpretation. Trump at one point talked of applying a 200% tariff rate on pharmaceuticals.
From the Republic of Ireland point of view it is critically important what happens next in terms of tariffs on pharmaceuticals. In 2024 the Republic exported euros 73bn of goods to the USA of which euros 58bn were pharmaceuticals (the Republic imported only euros 4bn of pharmaceuticals from the USA).
Various studies are predicting massive losses to Irish output and employment if Trump applies any substantial level of tariff (say 20% or so) against EU pharmaceuticals. RTE has quoted Irish government forecasts that half of the current 50,000 jobs in drugs production could be under threat. A study linked to the Irish Department of Finance suggests the impact of pharma tariffs could lead to Irish national income being 1.5% lower than it would otherwise have been in five years’ time.
But back to the question of the rationale for the European Union versus any Brexit gains. Going back to the 1950s the underlying economic justification for the “European project” has always been that joining together into one economic and trading unit would be advantageous for all its members. That then begs the question how it is that post Brexit UK got a better trade deal from the US than the EU? The tariff rate facing the UK is 10%. The massively pro-EU consensus amongst journalists and academics struggles to explain this.
What we do have is some commentary coming from south of the border where the Irish employers’ organisation IBEC has expressed concerns about the differential which now exists between Northern Irish exports to the USA as compared to Republic of Ireland ones.
Whilst they say they have no wish to see Northern Ireland deprived of any advantage which it has now acquired, that they simply want to ensure that Republic of Ireland businesses are not disadvantaged, this reaction does indicate they can identify a Brexit gain (even though they will not call it that).
So, some consolation for Northern Ireland that in the Trump world of rising tariffs we at least face lower tariffs than most of the rest of Europe. That said, the Irish Sea border, which has been tightening in terms of parcels and labelling regulations, continues to pose an obstacle to importing goods and materials from GB.
l Esmond Birnie is senior economist at Ulster University Business School