Wall Street Economist and Fellow of Johns Hopkins University

It is an understatement to proclaim that these are challenging times for the transatlantic economy. The U.S.-led, rules-based international order of the past eighty years is fracturing, leaving some of the world’s most open and trade-dependent regions and countries – Europe and Ireland – exposed to a number of global crosscurrents. A more expansionist Russia, a more mercantilist China, and a more protectionist and isolationist United States represent key challenges to Ireland in particular and the transatlantic economy in general.

Transatlantic trade and investment ties are being tested by the U.S.’ sweeping imposition of tariffs on most of its trading partners. Since so-called “Liberation Day”, April 2, 2025, the Trump Administration has introduced several tariffs on European goods entering the U.S. After much bi-lateral negotiations over the past year, U.S. tariff rates for EU goods have settled in at around 16-18%. This is not as bad as feared but still represents a more than a five-fold increase in tariffs from the start of 2025. This overall figure, in addition, masks wide differences in the effective tariff rate for individual EU member states and specific sectors.

What’s more, U.S.-EU trade negotiations remain fluid and incomplete – in January 2026, the European Parliament formally suspended the ratification process over tensions over Greenland. However, the transatlantic mood, albeit tenuously, improved after the Trump Administration backed down from imposing additional tariffs on Europe and seizing Greenland. At the time of this writing, the EU-U.S. bi-lateral relationship remains strained and stressed.

Thus far, however, a full-blown transatlantic trade war has been avoided and remains an outlier. Indeed, transatlantic trade flows have remained remarkably resilient over the past year – notwithstanding all the transatlantic turbulence of late. According to the latest data, U.S. exports to Europe rose 21.4% to $510 billion in the first nine months of 2025 from the prior year, while imports over the same time frame soared 14.4%, to $722 billion. The difference – or trade deficit – totaled $212 billion, a modest 0.5% increase from the same period a year ago.

U.S. imports from Europe – notably Ireland – were supercharged by firms front-loading imports ahead of the imposition of U.S. trade levies. Hence, U.S. imports from Ireland soared by nearly 47% in the first ten months of 2025 from the same period a year ago, as pharmaceutical companies in Ireland rushed product to the U.S.

Better-than-expected trade figures have helped bolster real growth on both sides of the Atlantic, although the U.S. economy, led by strong capital investment in Artificial Intelligence (AI) in particular, continues expand at a much faster clip than Europe. Notwithstanding the negative shock from U.S. tariffs and attendant uncertainty, the U.S. economy expanded by nearly 4% in real terms in the second half of 2025, powered by strong consumption and investment, and heads into 2026 on solid economic footing. By most estimates, the U.S. economy is expected to expand by 2.5% this year.

Better-than-expected trade figures have helped bolster real growth on both sides of the Atlantic.

The economic outlook in Europe is less robust and more of a mixed bag: fiscal expansion is supportive of growth in Germany, while France, Italy and the United Kingdom confront tighter fiscal positions. According to estimates from the IMF, growth in the Euro area (1.3%) is well below the level of the U.S. and the world growth average of 2.8%. Europe remains the global economic laggard again this year.   

Of particular concern near-term, Europe’s trade sector remains vulnerable to soaring Chinese imports and China’s mercantilist impulse that resulted in China running a global merchandise trade surplus in excess of $1 trillion last year. Due to China diverting more trade towards Europe in light of higher U.S. tariffs, the EU’s merchandise trade deficit with China soared by roughly 25% in the first nine months of this year ($300 billion). Ireland’s trade with China was also in a deficit, with Ireland’s exports to China totally $7 billion in the January-September 2025 period versus imports of $7.8 billion, leaving a deficit of $800 million.

In addition to the threat from China, Europe remains challenged by a number of well-known structural impediments to growth. These include an aging labor force, unsustainable fiscal positions, and uncompetitive barriers to growth, addition to lagging industry productivity and the adoption of technology. The lack of policy coordination within the 27-member states of the European Union is another structural disadvantage holding back Europe, notably at a time when both China and the U.S. have embraced modern day mercantilism, or state-guided industrial policies designed to promote security and growth.

To wit, Mario Draghi’s report on EU competitiveness, released in 2024, touched on many of these factors, although to date, of Draghi’s 383 recommendations, only 11% have been adopted thus far according to a recent update.

Looking ahead, and after a resilient start, global activity is expected to moderate into the back half of 2026 as the front-loading effects of trade fade, labor markets soften in both the U.S. and Europe, and fiscal vulnerabilities push up borrowing costs for not only the U.S. but also many European states, notably France and the United Kingdom. A key worry in the U.S. lies with the massive buildout of the AI infrastructure – and the attendant effects on jobs over the long-run.

The risk for 2026 is that the transatlantic economic divergence widens, and becomes more destabilizing and untenable, upending near- and long-term transatlantic trade and investment flows. Another risk: the simmering U.S.-China rivalry that could undermine global growth and challenge an open economy like Ireland. Unpredictable geopolitical hotspots in the heart of Europe, the Middle East and the South China Sea also bear close watching as the second half of the 2020s begin. U.S. claims on Greenland, of course, also remains a strategic stress point.

Suffice it to say that we are certainly living in “interesting times.” The only real certainty of today is uncertainty. But within this fluid environment, one constant remains: the bonds that bind Ireland and the United States together remain robust and resilient, and are only expected to become even stronger and dynamic in the years ahead.