Minister for Finance Paschal Donohoe has issued a stark economic warning about the impact of a EU-US trade war and the toll tariffs may have on the domestic economy.
A “general decline in certainty” regarding trade and tax certainty will be “very corrosive to growing jobs and growing living standards in the time ahead,” he said.
Speaking in Brussels on Thursday morning, Mr Donohoe said the Department of Finance and the ESRI will shortly be publishing a paper on the impact of tariffs and the associated uncertainty in the economy arising from the prospect of drawn out trade disputes.
“Any economic impact of tariffs is bad for Ireland. It’s bad for Europe, but it’s also bad for global trade,” he said, adding that the scale of the economic impact will depend on the scale of tariffs that are applied.
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The soon-to-be published research, he says, indicates that the biggest effect is in the medium term, but that “any impact is going to be bad”.
“It would be bad for jobs, it would be bad for growth, and it could be bad for inflation,” he said. Ireland was approaching the challenges from a position of economic strength, he said, with the jobs market and public finances in a healthy position.
“However, there’s little doubt at all that moving into a phase in which tariffs are applied across the world will be harmful and will be difficult for economic growth.”
He warned of a “gradual loss of confidence” in the basic rules regarding how countries engage and trade with each other over time which will also have an effect on economic performance.
“If we do enter into a period in which there is a loss of confidence with regard to the rules on trade and with regard to the rules on taxation ... that will affect how countries can export and that in turn then will affect the profitability of all of us and the tax revenue of all of us.”
“But I am as convinced as ever that the best way of Ireland approaching all of those challenges is through the European Union and it’s why meetings like today are going to be even more important in the years ahead.”
With the prospect of Irish firms in industries such as distilling being caught up by retaliatory tariffs being applied by the EU, Mr Donohoe said Ireland would have the same engagements with the European Commission.
“Every Government at the moment is outlining different views, but Ireland will be part of making clear that tariffs will harm trade, they will harm jobs and they’ll cause prices to go up.
“Europe will have to respond back proportionately to it and firmly to it, if that happens, because other parts of the world decide to apply tariffs.”
Asked about the potential for pharmaceutical firms to invest in other jurisdictions rather than Ireland in light of protectionist pressures being exerted on them, he said that multinationals had invested in both Ireland and other parts of the world for many years.
Mr Donohoe will be chairing a meeting of the Eurogroup – nations which share the euro as their common currency – as well as updating EU member state leaders.
He will inform EU heads of Government about efforts finance ministers are making to co-ordinate budget policy within the euro area, and outlining progress on the Savings and Investment Union project, formerly known as Capital Markets Union. He will also speak about the digital euro project.
With the EU preparing to invest hundreds of billions more in defence, facilitated in part by the use of novel financial instruments and the loosening of spending rules Mr Donohoe said such steps could make a “decisive difference” to efforts that Europe is making to “making itself more secure”.
Many governments will use their own budgets to invest in defence, he said, which would be supplemented by the proposals made under European Commission president Ursula von der Leyen under her ReArm Europe plan.
