GLOBAL THREATS TO FREE TRADE
The latest international trade data for Ireland confirm once again that the export sector of the economy remains a very important engine of overall economic growth and it is blatantly obvious that the future health of the export sector is crucial for the overall health and prosperity of the economy. Ireland is first and foremost a textbook example of a very small and very open economy and policy makers as well as the public should never forget this very important fact.
In the first four months of the year, merchandise exports were 12.7 per cent higher than the equivalent period in 2018. In the context of Brexit-related difficulties and the grey clouds that are currently hovering in international economic skies, this is a very impressive and very re-assuring performance. Overall exports to the EU, which accounted for just over 49 per cent of total exports, increased by 11.4 per cent. Within the EU, export sales to the UK increased by 9.3 per cent and the UK accounted for 10.8 per cent of total exports, which is the lowest market share for the UK in our history. Of course, the overall export numbers are distorted by the contribution of multi-national companies, particularly Pharma, and indigenous Irish exporters are still disproportionately dependent on the UK market. Just less than 36 per cent of exports of food and live animals were destined for the Great Britain market in the first third of the year. Therein lies the Brexit challenge.
It is worth noting that although exports from the multi-national components of the economy do dominate and do distort the real meaning of the aggregate export data, overall exports of food and live animals did grow by 4.8 per cent in the first four months of the year. This sector is doing well in a challenging environment.
As mentioned earlier, the significance of this export performance and the overall contribution made by the export sector should not be lost on policy makers or the public. It is essential that policy remains firmly focused on ensuring that the sector remains as flexible and competitive as possible in the face of the gathering challenges.
We obviously have no idea at this stage what Ireland’s trading relationship with the UK will look like after October 31st next. However, one would have to have deep concerns about the apparently growing risk of a disorderly Brexit, which would have profound implications for the indigenous exporting sector in particular.
The clear slowdown in global economic activity is also a cause for concern. Central bankers are making heavy reference to these risks at the moment. The European Central Bank (ECB) stands ready once again to do whatever it takes to prevent a sharper slowdown in the Euro Zone economy. It cannot really cut the key official interest rates any further, but the provision of increased liquidity to the financial system remains a distinct possibility. In the US, the Federal Reserve appears to be somewhat willing to start easing interest rates again.
The fact that key central bankers are starting to show signs of behaving in this manner sends a clear message that they are and that we should be concerned about the current health of the global economy. Therein lies another threat to Ireland’s export sector.
Underlying all of these concerns is the fact that President Trump and the Chinese appear intent on ramping up their trade dispute and the threat of further escalation is now a very real one. It is estimated that the tariff measures implemented to date could knock up to 0.5 per cent off global growth this year, and with further escalation, the threat to global growth in 2020 looks potentially more serious.
The dispute between the US and China is no longer just about the trade imbalance between the two countries, and is now drawing in issues such as technology, industrial strategy and currency manipulation. It is difficult to see the logic driving Trump’s strategy, as US consumers look set to become the real losers from his tariff strategy. However, Trump recognizes that if he is to get re-elected, which appears a high probability at this early juncture in the electoral cycle, he cannot risk the current very real downturn in the fortunes of the manufacturing sector turning into something more serious. He obviously believes that increased protectionism will help address the problem.
More fundamentally, the current trend towards protectionism poses an existential threat to the globalization phenomenon that has been broadly positive for the overall global economy over the past three decades, and particularly so for Ireland.