Lose-lose situation for Ireland if US-China trade war breaks out

A dangerous game of chicken is under way between Washington and Beijing on trade. Tensions rose significantly earlier this week as US president Donald Trump announced planned tariffs on about $50 billion of Chinese imports in reaction to alleged Chinese theft of the intellectual property of US companies – and China responded with a similar threat on US exports to its markets.

This followed earlier skirmishes, notably in relation to steel and aluminium trade.

With a two-month consultation due in the US before the tariffs announced this week are due to come into force, there were hopes that this could be sorted out in the meantime via negotiations. However, on Friday Trump upped the ante significantly, saying the US would consider publishing a list of a further $100 billion of Chinese imports on which tariffs could be imposed, due to what he called the unfair reaction of China to the earlier US move. In turn China promised a “fierce counterstrike” if this happens.

Economic growth

There are two ways this could affect Ireland. One is a hit to world economic growth if a full-scale US/China trade war takes hold. Some economic models have suggested it might knock half a point off international economic growth next year.

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The second would be if the trade tensions spread. Remember that the US originally threatened to impose tariffs on all steel and aluminium imports and this plan was only put on hold in relation to the EU – and also Canada and Mexico – pending negotiations. Were these tariffs to proceed, the EU would retaliate and Irish exporters to the US could be caught up in subsequent crossfire.

There are other ways tensions could spread. For example, Trump has said ways need to be found to help US farmers hit by the fallout of Chinese food tariffs. But if US farmers get government assistance, then farmers in the EU and elsewhere will be crying foul.

In the short term there could be some gains for Ireland. For example, our pork producers might be able to step into the Chinese market to replace US products priced out by tariffs. But the wider threat to a small exporting country like Ireland from a trade war is much greater than any sectoral benefit. There are no winners in trade wars – which push up prices, hit economic efficiency and cut growth.