In firing line for Trump trade war
Our open economy leaves us very exposed to an escalation of the tariff spat between the US and EU,
THE current round of hostilities began on March 1, when the Trump administration announced tariffs of 25pc on steel imports and 10pc on aluminium imports. If Trump expected America’s trading partners to roll over and accept the new tariffs, then he miscalculated. Instead, the EU retaliated by imposing tariffs of its own on a wide range of imports from the US — including Harley-Davidson motorcycles, Bourbon whiskey and Levi’s jeans.
So far so bad. However, it is the President’s threat to retaliate against the EU retaliatory tariffs that threatens to turn what has up to now been no more a nasty bout of handbags into something much more serious.
On June 22 the US President tweeted threats to impose a 20pc tariff on European car imports. The EU response to this latest threat was that it would, in turn, impose tariffs on €250bn worth of US imports.
While the “rebalancing” measures announced by the EU following the imposition of steel and aluminium tariffs affected just €2.8bn of imports from the US, a mere pinprick, the latest threatened tariffs would hit almost a fifth of EU imports from the US.
Just when it seemed as if things couldn’t get any worse, Trump made a not-so-veiled threat to pull the US out of the World Trade Organisation, the body which adjudicates on international trade disputes.
Speaking to reporters after a meeting with Dutch Prime Minister Mark Rutte last week Trump said: “The WTO has treated the United States very, very badly and I hope they change their ways.”
His comments came at the same time as reports that the Trump administration was preparing draft legislation that would allow the US to raise tariffs at will and to negotiate special tariff rates with individual countries — both of which would violate WTO rules.
So why should this matter to us here in Ireland? With one of the world’s most open economies, it matters a lot.
Ireland has the world’s fifth-most open economy, according to the International Chamber of Commerce’s Open Markets Index. Ireland scored 4.77 points, out of a possible six, with only Singapore, Hong Kong, Luxembourg and the Netherlands being ranked higher.
The ICC index measures four factors, openness to trade, trade policy, openness to foreign direct investment and trade-enabling infrastructure. In practice, these four factors are mutually reinforcing. The World Bank’s international league table of foreign trade (exports and imports) as percentage of GDP produces an almost identical result.
According to the World Bank figures, total Irish foreign trade was the equivalent of 208pc of GDP in 2016. This exposure to international trade was exceeded only by Luxembourg (424pc), Hong Kong (375pc), Singapore (322pc) and the Indian Ocean island nation of the Comoros (619pc — surely a statistical anomaly).
Our exposure to international trade far exceeds the EU average of 86pc and that of the larger EU countries including Germany (87pc), Spain (66pc), France (63pc), the UK (62pc) and Italy (60pc).
For what is a relatively small country, the volume of Ireland’s international trade flows, even allowing for the distortion caused by the multinationals, is enormous. In 2017 our total exports of goods amounted to over €122bn while imports were a further €79bn, a total of more than €201bn.
In 2016, the last year for which figures are available, we exported almost €141bn worth of services and imported €186bn, a total of €321bn. Add it all up and Irish overseas trade, both imports and exports, is worth more than half-a -trillion euro a year.
One of the pillars of this huge volume of international trade is the number of people employed by IDA-supported overseas companies, over 210,000 at the end of 2017, with a further 209,000 working in Enterprise Ireland-supported Irish-owned companies. That’s over 23pc of total private sector employment.
These multinationals are also major taxpayers, contributing an estimated 80pc of the €8.2bn in corporation tax collected in 2017. The Fiscal Advisory Council has calculated the loss of just one major multinational could cost the exchequer €276m a year.
“The decision by the US to introduce tariffs on steel and the EU’s subsequent response, is deeply concerning to the Irish business community,” said Chambers Ireland chief executive Ian Talbot.
“In Ireland, we’re among the most open markets in the world. While open economies like our own benefit when global growth is strong and markets are open, the inverse tends to happen when countries introduce protectionist policies, leaving us exposed to any global decline in GDP.”
Ireland was barely touched by the initial round of US tariffs on steel and aluminium, points out Ibec economist Alison Wrynn. We don’t have a steel industry and, while we do have an aluminium industry, Aughinish Alumina, it mainly exports to the EU.
She calculates that a mere €18m of Irish exports to the US will be affected by the initial round of Trump tariffs. Ironically, Ireland will be worse-hit by the retaliatory EU tariffs, which also targeted some US steel products, as unlike most other EU member countries, we import substantial amounts of steel from the US.
Wrynn expects that up to €59m of Irish imports from the US will be liable for the new EU tariffs, of which about €37m will be steel.
Where things could get more complicated is if Trump targets EU spirits exports to the US in retaliation for the EU’s imposition of tariffs on bourbon. If, or possibly when, that happens then Irish whiskey will find itself directly in the firing line. Exports of Irish whiskey have increased by 340pc over the past decade, with two thirds of that growth coming from the American market.
As if the prospect of a global trade war wasn’t enough to be getting on with, we in Ireland also have to deal with Brexit.
Although only 13pc of our goods exports and 16pc of services exports go to the UK, this understates our true dependence on the British market. This is because indigenous exporters, such as food and drinks companies, are much more heavily reliant on the UK — with almost 40pc of food and drinks exports going to the UK.
These indigenous exporters spend far more on Irish inputs, about 60 cent per euro of sales, compared to just 11 cent by the multinationals. If Trump doesn’t clobber us, will UK Prime Minister Theresa May do the honours instead?