By Eamon Quinn
Ireland is the third most vulnerable country to a full-blown trade war should US president Donald Trump erect a tariff wall on all US imports, according to a leading group of forecasters.
Capital Economics in London estimates that Ireland’s chemical and electronics industries put it at risk, if the US alone slaps tariffs on all its imports, with only Canada and Mexico ranked as being more exposed.
That’s because Ireland exports so many high-value pharmaceutical and electronics products to the US.
The economists say history doesn’t help much in assessing the likely fallout because there were other factors beyond trade that led to the Great Depression of the 1930s.
They believe that for the time being the world economy is safe as long as Trump doesn’t sanction a huge escalation.
“A tariff imposed by a single government can give its economy a boost. It is similar to a devaluation as it makes domestically-produced goods more competitive and foreign-produced goods less so, although inflation, currency movements, and fiscal policy may dampen these effects,” according to Capital Economics.
[quote]But the situation is very different if all economies impose tariffs. In this case, it is still possible for countries running trade deficits to make some gains but they would be at the expense of losses for countries running surpluses.
"Tariff barriers imposed by all countries on all trade would tend to cancel each other out.[/quote]
“In a global trade war, the most significant costs would come from relocation of resources by businesses seeking to minimise the cost of the tariffs.
"Some of this is already underway. This will result in a loss of efficiency as economies of scale and specialisation are reversed.
“The disruption would be concentrated on manufactured products, particularly those made in complex supply chains,” the forecasters say.
Nonetheless, “the risks are rising”, they warn.
Ireland could be one of the countries in the firing line and likely “tipped into recession” if a global trade war breaks out.
“In total, therefore, a global trade war with 25% tariffs might reduce world GDP by 2% to 3% compared to trend.
“This would be less damaging than the global financial crisis or the Great Depression, but comparable to other downturns such as the 1973 oil shock or the early 1980’s recession.
"However, the costs may be much larger for some small, open economies which could be tipped into recession,” it warned.
