Tariff and non-tariff measures “could significantly” impact Ireland’s small, open economy, with economic shifts towards de-globalisation and protectionism likely to adversely impact employment, consumption and public finances, a new working paper suggests.
The joint report from the Economic and Social Research Institute (ESRI) and the Department of Finance notes Ireland’s vulnerability to “shocks emanating from the global trade environment,” and examines the effects an increasingly protectionist international environment could have on various aspects of the domestic economy.
This comes as trade relations between the United States and the European Union are at a low ebb, with a 25 percent US tariff currently placed on European steel and aluminium imports, and the EU threatening a counter tariff of 50 percent on American whiskey.
President Donald Trump has said that if the 50 percent tariff is applied, he will respond with a 200 percent tariff on European alcohol.
Ireland is poised to suffer the effects of a protracted trade war between the US and EU, and potentially faces non-tariff barriers that could also hinder foreign direct investment and therefore further threaten employment and tax intake.
Fears that the Irish economic model will be targeted by the US have been stoked by statements from senior members of the Trump administration, including President Trump himself.
During his meeting with the Taoiseach, Mr Trump said that Ireland was taking America’s “pharmaceutical and other companies away through taxation,” while US Secretary of Commerce Howard Lutnick during a recent podcast appearance described Ireland as his favourite “tax scam” and said that “that’s gotta end”.
The report conducted a scenario analysis to examine the potential macroeconomic impact of de-globalisation and protectionist policies on the Irish economy, part of which includes the estimated effects of unilateral and bilateral 10 and 25 percent US tariffs leveled against the rest of the world and the EU.
A 10 percent US unilateral tariff to the rest of the world, Ireland included, could reduce Ireland’s GDP by up to 2.5 percent and domestic economy by up to 1.3 percent.
Meanwhile, 10 percent bilateral, or “tit-for-tat” tariffs, between the US and the rest of the world, Ireland included, could see Ireland’s GDP and domestic demand fall by as much as 3.2 percent and 1.7 percent respectively below the no-tariff baseline.
Scenarios are also considered where both a 25 percent unilateral and bilateral tariff between the US and the EU are imposed, with the results suggesting that the impact to the Irish economy of 25 percent US-EU tariffs would be similar to those of the 10 percent US-rest of the world tariffs, with GDP and modified domestic demand (MDD) falling from the baseline by as much as 3.7 percent and 1.8 percent respectively.
The paper finally presents a scenario in which a 10 percent increase in non-tariff barriers from the US to the rest of the world are applied, with the report estimating that such a situation “would also have a significant negative impact on the Irish economy”, with GDP and MDD falling by as much as 3.1% and 1.6% below the no barrier baseline respectively.
The results of the research indicate that the traded sector of the economy, which is the sector largely composed of exporters selling to buyers outside of the region, would be “disproportionally
impacted by these protectionist measures due to its strong linkages with the
global economy”.
That estimated outcome sees production in the sector falling by as much as 4 percent from the no protectionist policy baseline, compared to a 2 percent fall in domestic sector production for
the same scenario.
Commenting on the report, an author of the working paper and research officer at the ESRI Dr Paul Egan said: “Our research shows that protectionist policies have the potential to significantly impact the Irish economy, with the traded sector disproportionately affected.
“This, in turn, would lead to a significant impact on the labour market, consumption and the domestic economy as a whole. Protectionist policies may also prompt multinationals to relocate to the US, posing further risks to the Irish economy and public finances.”