A NEW working paper co-authored by the Economic and Social Research Institute (ESRI) and the Department of Finance has warned that the Irish domestic economy could shrink by 2% between the next five to seven years if the United States follows through on tariffs to EU goods.
Gross Domestic Product could end up falling by 3.5%, meaning that the overall health of the economy, including contributions by multinationals, would be affected. The report states that the traded sector in particular – that is, the part of the economy which includes pharmaceutical and technology exports – is likely to be ‘disproportionately impacted by protectionist measures due to [the US’s] strong linkages to the global economy’.
Production in this sector could fall by as much as 4% over the next five to seven years; almost double the expected drop in the domestic economy. The report states that these changes to the traded sector had the ‘potential to further negatively impact the overall economy because those employed in the traded sector tend to be more educated and better paid than the overall workforce’.
Research officer for ESRI, Dr Paul Egan, warned: “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.”
The study comes in the wake of threats from Donald Trump’s administration in the US to impose import taxes of between 10% and 25% on the EU. It warned that a 10% non-tariff barrier imposed by the US would include regulatory requirements which would end up restricting market access for Irish and global exporters.
Responding to the paper, Minister for Finance Pascal Donohoe said that the Irish economy was potentially facing into unprecedented levels of uncertainty, adding that Ireland should prepare itself for the very real possibility of American tariffs being imposed.
Mr. Donohoe said: “Government must, of course, plan for all eventualities, and the work being published today by my Department and the ESRI provides one piece of the analytical jigsaw needed to chart a way forward.
“Ireland has been a massive beneficiary of globalisation and we remain a strong advocate of free-trade policies. Ireland and the US enjoy a mutually beneficial, two-way economic relationship.
“Government will continue to work to improve the enterprise climate in Ireland, including by ramping-up capital spending in key strategic areas, including energy, water, transport and housing. This is how we will remain competitive against a backdrop of heightened uncertainty.”
