Dr. Tom McDonnell:

The Deputy provided a good summation in terms of the points he made. From all the empirical research I have seen - and there is surprisingly little of it because there was an assumption among economists that tariffs imposed by advanced economies were mostly of historical interest - but what is there, much of it rushed out in the past year or so, is very clear that the bloc imposing the tariff, if it is a general tariff, will be the worst hit. If we think about it, the US is imposing tariffs on all countries. The EU is imposing a tariff on one country. Broadly speaking, therefore, it is affecting a smaller proportion of its imports. As a result, the impact on prices is not as severe and so forth.

The second thing is that if we are imposing tariffs, we are effectively doing what they are doing, albeit in respect of a smaller proportion of our imports, and, as a result, we will be negatively hit in all the ways described. This will mean higher prices, although that will be competing against lower economic growth. Lower economic growth tends to mean lower prices. Therefore, there is an offsetting effect, albeit it for a very bad reason. If there are fewer people working, there is less demand in the economy. As a result, prices might come down and this will compete with the higher prices. That is why there is some uncertainty as to what happens in respect of prices.

The other uncertainty relates to what happens to exchange rates. Normally, it is expected that a country that introduces tariffs is importing less so its exchange rate will often improve. What happened in this case, of course, is that it did not. The value of the dollar depreciated because the policies were considered so eccentric and there was such uncertainty that there was a loss of confidence in the US economy. Therefore, investors, including hedge funds, pension funds and so forth, were taking their assets out of the US altogether. That is what ultimately precipitated the original climbdown, which was quite a wise move actually.

In terms of uncertainty, the Deputy is correct. One of the four negative transmissions is uncertainty. If we can arrive at a particular figure that we know is going to be the case until the Trump Administration is gone, and assuming there is no Trump Administration, but even if the next Administration brings it in, then businesses can actually make decisions. At the moment, people cannot make decisions. If it is bouncing from 50% to 30% to 10%, they do not know whether it makes sense to build a plant in Ireland, the US or Germany, so they will simply hold off. This means fewer jobs in construction in the short term and lower productivity in the long term. If states can bring certainty, then decisions can at least be made, even if they are not the decisions they might have made six months ago. This will lead to a resumption of investment. It may be pent-up investment and may not be as much as it would have been before, but at least it will be there. Therefore, an agreement would be good for the economy. It would draw a line under the matter, to address the Deputy's point.

What would be acceptable as a tariff? The lower the number, the better. There is no good number for a tariff. There are good reasons for tariffs, albeit these are the types of reasons that South Korea and other countries would have done introduced tariffs in the 20th century. They are not necessarily relevant for the United States in the 21st century, unless the Americans are trying to shut out particular sectors they want to develop over time. Of course, they could simply just ban imports altogether. There are all sorts of mechanisms that can be used. This would mean that a sector-specific tariff might make sense for the United States in respect of particular things, but a general tariff would not.

What would be acceptable? There is no right answer to that question. It is not going to be lower than 10%. We are not going to get a better deal than the United Kingdom. It would appear that 10% is the floor that is on offer, at least for the next two years. The closer we can get to that, the better. Obviously, 30% would be a devastatingly bad outcome. We reach a point eventually where trade simply ceases to become profitable. In that case, what might happen with the intra-company transfers in pharmaceuticals and the like is that they might start selling to their analogues in the US at a very low level. Therefore, it would persist and the US would continue to get it. What would happen then would be that we would have lower corporation tax receipts. However, that would depend very much on the specificities of the companies involved, which are all very different in terms of how they operate. That answer I would give is that the lower we can get it, the better.