Ireland will be the worst hit economy in the eurozone if the US-China trade spat broadens to envelop Europe, according to a leading economics group.
The assessment by Capital Economics in London finds that Ireland will be in the front line should the flare-up in the US-China tit-for-tat tariff strife encourage President Donald Trump to use the same tactics later this month in a simmering dispute with the EU.
Any such escalation would hit the Irish economy even harder than Germany’s, according to the research.
It comes as China ignored a warning by tweet from Mr Trump and said it will impose tit-for-tat higher tariffs from June on 2,493 goods it imports from the US.
There is no reason for the U.S. Consumer to pay the Tariffs, which take effect on China today. This has been proven recently when only 4 points were paid by the U.S., 21 points by China because China subsidizes product to such a large degree. Also, the Tariffs can be.....— Donald J. Trump (@realDonaldTrump) May 13, 2019
The US last week imposed higher tariffs on billions of dollars worth of goods it imports from China.
Jack Allen, senior Europe economist at Capital Economics, said the latest tariffs imposed last week by the White House are part of the pressure the US is bringing on China to strike a new trade deal between the two countries.
“If the US raised tariffs more widely, the German and Irish economies could be hit quite hard,” wrote Mr Allen in the research note that assesses the threat of any US tariffs to the EU.
He told the Irish Examiner that Ireland is in the frontline of any US-EU trade war because the Republic exports huge amounts of pharmaceuticals and chemicals to the US.
Mr Trump may also be mulling whether the threat of tariffs on pharmaceuticals made in the EU would encourage a large number of drugs plants based in Ireland, which are predominantly American-owned, to relocate manufacturing jobs back to the US, he said.
Pharmaceuticals has so far mostly escaped inclusion on the tariff war list between the US and China.
The latest flare-up between the two countries sent European and US shares reeling.
In Ireland, the shares of packaging firm Smurfit Kappa and building products giant CRH — the two Irish multinationals who could be closest to the trade war fallout — fell by 3% and 1.6%.
“An intensification of trade wars is not likely to be good for Wall Street, or for equity markets generally,” said Chris Beauchamp, chief market analyst at broker IG.
Mr Allen noted that US commerce secretary Wilbur Ross said last week that Mr Trump would likely decide by May 18 whether to impose tariffs on EU vehicle imports.
“Even if that deadline is pushed back, with President Trump taking a harder line on China, there is a risk that he eventually does the same with the EU,” he said.
The EU and US appear to have made little progress after they decided last year to work together towards striking a new trade deal on non-car industrial products.
“What’s more, the US could extend tariffs beyond vehicles. This is perhaps a bigger risk if the EU continues to reject the US’s desire to include agricultural goods in any potential trade deal.
"If that were to happen, Ireland would be the hardest hit eurozone economy, with manufacturing exports to the US equivalent to almost 10% of its gross value added,” said Mr Allen.
“The upshot is that on their own, vehicle tariffs would have a small impact on the euro-zone as a whole.
"But their effect on confidence would be hard to quantify. And further protectionist measures could follow.”