A trade war would have been “ruinous” to Irish jobs and to the economy, Taoiseach Micheál Martin has said, defending the European Union decision to agree to a 15 per cent tariff on exports to the US.

Mr Martin said Ireland and Europe had to face “new realities” and the deal that was struck in Scotland on Sunday between EU Commission President Ursula von der Leyen and US President Donald Trump was preferable to higher tariffs and a prolonged trade conflict.

“The stability and predictability that this agreement brings is important for businesses, is important for consumers and indeed patients when it comes to the manufacturing and distribution of medicines.

“In essence we have avoided a trade conflict here which would be ruinous, which have been which would have been very damaging to our economy and to jobs.”

His views were echoed by Minister for Finance Paschal Donohoe. In a statement issued by his Department, the Minister’s spokeswoman said the agreement was more optimal for households and firms than the alternative of higher tariffs, as well as retaliation and escalation.

Asked about the views expressed by some European leaders and business leaders that it was a “capitulation” and a climbdown, the Taoiseach said he understood the criticism but also implied that the EU could not return to the situation that prevailed before April.

“I think we’ve been consistent in saying that we don’t agree with tariffs, that we prefer if there weren’t tariffs, but we have to deal with realities,” he said. “I understand people criticising, but given the balance and the options here, I think the... avoidance of a trade war is preferable.”

In relation to conflicting comments by Mr Trump and by Ms von der Leyen on Sunday on the status of the pharma industry vis-a-vis tariffs, Mr Martin said it was the Government’s “clear understanding” that tariffs with a “ceiling of 15 per cent” will be applied to the pharmaceutical and semiconductor industries.

The US has been preparing to levy tariffs on the EU pharma industry, which Mr Trump previously threatened could be at cripplingly high rates of up to 200 per cent.

The industry has escaped any tariffs to date, but the Trump administration has been planning to hit the sector with specific levies.

Ms von der Leyen, who negotiated the final part of the deal with Mr Trump, said the agreement would cap any future pharma tariffs at a blanket 15 per cent rate.

Speaking in Brussels on Monday, EU trade commissioner Maroš Šefčovič said he believed those commitments on pharma “will be honoured” by the US side.

Mr Martin said it was too early to say what impact the tariffs would have on the fiscal situation and on the October Budget. “It’s difficult at this early stage to calculate the impact of these tariffs in terms of Government revenues, or indeed in terms of the prospects for 2026 so we will do further analysis of that.”

He said new Irish polices of trade diversification to new markets, as well as an EU commitment to reducing inefficiencies within the Common Market, would have a countering impact.

He urged “caution” in terms of creating specific funds for affected businesses, saying that this was not Brexit.

Asked if the deal reflected an inherent political weakness in the European Union concept, he said it was a “different construct to the federal United States”.

“There are 27 individual member states, so inherently in that there can be differences of opinion. But I thought Europe maintained a commendable unity throughout these negotiations. In fact, at the last European Council meeting, the general message to the commission was to avoid escalation,” he said.

Mr Donohoe would not be drawn of if the new tariff ceiling would have an impact on the Budget calculations, despite the Summer Economic Statement predicating its forecasts on a tariff baseline of 10 per cent.

it was pointed out that the statement said if there was a deterioration in the tariff landscape, Government would recalibrate its fiscal strategy – reducing the quantum of the budgetary package – in order to ensure that the public finances remained on a sustainable trajectory.

“While the baseline tariff rates have increased, it is important to look at the agreement in the round,” said his spokeswoman.

The new arrangement would provide greater levels of certainty which would help support economic activity, she said.

Mr Sefcovic, who was the commission’s point-man in the tariff talks, said the alternative to a deal would have been an imminent trade war.

Threatened US tariffs of 30 per cent – which the agreement avoids – would have raised the cost of trading to such a point that most transatlantic trade would become unviable, he said.

Up to five million European jobs could have been at risk in such a scenario, Mr Sefcovic said. “This is the best deal we could get under very difficult circumstances,” the Slovakian commissioner said.

The two sides agreed that no tariffs would be charged on imports of aircraft, certain chemicals and some agri-food goods, though the finer details of what agricultural products will benefit from these exemptions are still to be worked out.

Challenge for Ireland

Minister for Enterprise Peter Burke said there is “no doubt” Ireland is in a challenging position in relation to tariffs but that the agreement does bring “some clarity”.

Speaking on RTÉ Radio 1’s Morning Ireland on Monday, Mr Burke said the EU was four days away from 30 per cent tariffs, which would have been “significant”, while the Government is awaiting more details to emerge.

Mr Burke said there would be a number of “carveouts” for particular sectors such as aviation, agri-foods and spirits.

He said the Government was concerned about the “stacking mechanism”, which refers to the cumulative effect of multiple tariffs applied to the same imported product.

“All of those areas have been called out for separate carveouts, so we have to see what that will look like and what will that amount to on paper, and that’s where the devil is going to be in the detail,” he said.

However, businesses are more cautious about the deal. Lobby group Ibec said it represents a “substantial burden” for many industries, and the most exposed sectors will require Brexit-style supports.

“Our message to the Government, as it was with the 10 per cent tariff, is that the most exposed sectors will require support similar to the interventions provided as a response to Brexit,” he said.

Irish whiskey industry

The EU and the US sides are to continue negotiations on the finer points of detail, including possible tariff exemptions for several sectors.

It is understood spirits are one area on that front where the commission feel they are making progress, which would be welcome news to the Irish whiskey industry, a big exporter to the US.

Eoin Ó Catháin, director of the Irish whiskey Association, told The Irish Times he hopes the deal can “provide the framework” for a return to zero-for-zero trade in spirits.

“The EU and US Government agreed to this zero-for-zero arrangement in 1997, and since then our shared sector has experienced huge growth in value to the benefit of economies and communities on both sides of the Atlantic,” he said.

“It is therefore logical to return to this. As it currently stands, Irish whiskey and drinks producers face a 10 per cent tariff when exporting to the USA – our biggest market.

“This, combined with a weakened dollar, has placed significant pressure on our distillers, and some have unfortunately had to close their doors. A return to zero-to-zero would be a big help to these exporters.”

He added he was hopeful “a mutually beneficial arrangement and the removal of tariffs can be secured”.

Dairy Industry Ireland director Conor Mulvihill said Confirmation exports will now be subject to a single 15 per cent tariff rate with no additional stacked duties was “particularly important” for Irish dairy products such as butter.

“While the simplification of the new tariff structure, as set out in the deal, will make it easier for the sector to manage, we remain concerned about the broader implications of any tariff border on the island of Ireland,” he said.

“The dairy industry operates on an all island basis, with integrated supply chains and cross-Border trade in raw milk, ingredients, and finished products.

“Any divergence in tariff treatment between Northern Ireland and the Republic of Ireland could introduce complexity, cost, and uncertainty for processors and farmers alike.”

Deloitte Ireland chief economist Kate English said the EU “was wise to pick their battles and to choose certainty”.

“Remember, this 15 per cent is not on top of existing custom duties – a good example we saw this weekend was Kerrygold butter, which is already subject to a 16 per cent custom duty, so will see little difference from yesterday’s decision.”

Daniel Mulhall, who served as Ireland’s ambassador to the United States from 2017 until 2022, posted on X that the deal “does not look like a great outcome for the EU”.

In response to his post, former Taoiseach Leo Varadkar said the deal will mean “fewer EU exports to the US and higher prices for Americans”. He added: “The only thing it’s better than is no deal at all and that’s only if it sticks.”

Paul Sweetman, chief executive of the American Chamber of Commerce Ireland, said a 15 per cent tariff level is “not an optimum trade environment” and will be a “significant burden” to businesses already managing a 10 per cent tariff.

“However, the agreement does bring a new stability and allows business decisions to be made with greater certainty,” he added.

Meanwhile, European governments and companies reacted with both relief and concern to the trade deal, acknowledging what was seen as an unbalanced deal but one that avoided a deeper trade war.

France prime minister François Bayrou said Europe had submitted to the US on a “dark day” for the union.

“It is a dark day when an alliance of free peoples, gathered to affirm their values and defend their interests, resolves to submission,” Mr Bayrou posted on X.

German chancellor Friedrich Merz rapidly hailed the deal, saying it avoided “needless escalation in transatlantic trade relations”.

German exporters were less enthusiastic. The powerful BDI federation of industrial groups said the accord would have “considerable negative repercussions”, while the country’s VCI chemical trade association said the accord left rates “too high”.

Italian Prime Minister Giorgia Meloni also expressed support for the agreement, calling it “sustainable.”

Market reaction

European shares advanced to a four-month high on Monday, led by gains in pharma and semiconductor stocks.

The pan-European Stoxx 600 index rose 0.7 per cent. Most regional bourses were also in the green, with Germany’s blue-chip Dax rising 0.6 per cent and France’s Cac 40 gaining 0.8 per cent. UK’s FTSE 100 added 0.1 per cent.

Euro area Government bond yields edged down on Monday, while investors assessed their bets on European Central Bank monetary easing.

Markets saw an additional 25-basis-point rate cut as likely, but pushed back the timing, assigning a 65 per cent probability for the move by December and an 85 per cent chance by March 2026.