Dan O’Brien

It’s not exaggerating to fear that something akin to an economic war could break out with Britain in months

‘WAR made the state and the state made war.” This is the pithy theory of one historian on the role of conflict in creating the sort of modern states in which we in Ireland live today. That theory is contested, but what is not contested is the fact that the number of wars between countries has fallen dramatically since 1945.

But if there has been a decline in hot wars, there has been a lot more talk recently of economic wars. Ireland had one such war with Britain in the 1930s. Among other things, it clobbered Irish farmers by closing off their main market.

It is not much of an exaggeration to say that the way things are going with Brexit, something akin to another economic war between the two sides of the Irish Sea could erupt in the coming months.

Nobody on the planet has had a bigger role in generating economic conflict than the inhabitant of the White House. Donald Trump has famously said that trade wars are easy to win for the US, given its huge size and clout. Although disrupting trade is a lose-lose proposition, there is a grain of truth in what the American president says.

International trade is less important for the US than for most other countries, because Americans produce most of what they consume. That is now true even of energy. For decades, the US depended on oil imports from places like the Middle East to light its cities and power its pick-up trucks. Now, as a result of new

technologies such as fracking and the like, there has been a drilling boom and the country is on course to become a net exporter of oil as early as next year.

This self-sufficiency strengthens Trump’s hand when he makes demands of others. As the US is Ireland’s largest national export market by a distance, the sort of full-scale trade war between Europe and America that he has threatened could be as damaging as a no-deal Brexit.

The rise of economic nationalism is not by any means confined to the current US administration. Last Thursday, the Dáil voted by a two-to-one margin against Ireland’s interests by seeking to block the opening of trade between Europe and South America. This is truly astonishing for a country whose history so well illustrates how economic nationalism fails and how trading with the world makes a people prosperous.

The act of self-harm perpetrated by the political class last week has been met with the trotting out of the wildly inaccurate cliché that all politics is local. When you live in a globalised world and your economy is one of the most globalised in the world, believing that your politics can be local is madness.

A failure of politicians to focus on the big issues was a major contributory factor to the crashes of the 1950s, 1980s and the more recent property-centred crash.

If politicians are prepared to sacrifice the national interest, which itself has become internationalised, in favour of those who can shout loudest locally, then it is only a matter of time before they crash the country again. That is up to voters – people ultimately get the politicians they deserve in a democracy. Against the backdrop of rising economic nationalism and trade wars, one might have thought that businesses in Ireland would be facing tougher times selling into foreign markets.

But just as Brexit uncertainties and Trump’s capriciousness have had fewer negative spillovers for, respectively, the British and American economies than might have been expected, geopolitical headwinds have not yet shown up in Ireland’s trade performance.

Figures published last Thursday showed that foreign sales of services provided by companies based in Ireland were up by 17pc in the first three months of the year compared with the same period in 2018. At a massive €45bn, they were – for context – 10 times greater than the amount the State currently spends on health over three months.

Ireland has become incredibly successful selling services to other countries. According to the World Trade Organisation, for every $30 that crossed a border anywhere in the world to pay for an internationally traded service – and that includes all tourism spending – $1 accrued to Ireland.

Central to the recent, and continued, success in services has been the big tech companies. They have flocked to Ireland as the industry has expanded globally. Around the end of last year, computer services accounted for more than half of all services exports for the first time. That was both because they continue to grow at a blistering pace and because non-computer services exports have stagnated since the middle of last year.

The latter development is mildly concerning. It could reflect more difficult international trading conditions. It is certainly a trend to watch.

Earlier this week, the latest figures for exports of physical goods were published. They were almost as good as the headline services figures.

The value of stuff put on to trucks, ships and planes and sold outside the jurisdiction stood at €64bn in the first five months of the year. That was up by 13pc on the same period in 2018.

Here again, a multinational-dominated sector – pharmaceuticals and chemicals – accounts for more goods export earnings than all other sectors combined, including food.

Putting too many eggs in one basket will always have its risks, but the ‘pharmachem’ sector is not a bad sector to be over-exposed to, mainly because it is more recession-proof than most others – people need medicines as much in bad times as in good times.

But even this factor won’t insulate the industry if the world’s politicians move further towards economic nationalism and trade wars. The same can be said for Ireland’s economy more widely. It has been based on economic openness for more than half a century.

The model simply won’t work in an era of economic nationalism. That is something to be really worried about.

International trade is less important for the US than for most other countries, because Americans produce most of what they consume