Brexit and now Trump stoke concerns for Irish firms, writes John Whelan.
Jaw–dropping political upheaval on both sides of the Atlantic has created unprecedented levels of uncertainty. Businesses involved in international trade are accustomed to a baseline level of uncertainty and relative anonymity.
We’re not just talking about major events with global ramifications, such as volcanic ash clouds, or tsunamis. There are also micro-disruptions in supply chains every day, such as port strikes, that force exporters and importers to be on their toes at all times.
Yet, this year is particularly taxing. Firms face uncertainty about trade agreements, taxes, and tariffs, as well as the threat of public naming and shaming of corporations who follow their normal free-trade rights, but offend the Trump administration’s America First mantra.
This is particularly worrying for Ireland, as the US is our largest export market taking €30bn of our manufactured goods last year. The US protectionist rhetoric will also be worrying for the 150,000 employees in US corporations based here. With Brexit, the fear is that a volatile UK market will slow Ireland’s exports to our second largest market, and extensively damage our agri-food trade.
Of particular concern is the higher costs resulting from increased duties and taxes, and the impact on Ireland’s competitiveness.
Increased duties and taxes mean an increase in the cost of goods sold. This, in turn, will require manufacturers to either increase prices (which will ultimately be felt in the consumer’s wallet) or see their profit margins squeezed. Neither is ideal.
Ireland’s commercial interests are not served well by increasing import tariffs and hollowed-out trade agreements.
Having operated under the established regulatory burden of multilateral trade agreements, put together over many decades by the World Trade Organisation, the idea of scrapping existing programmes and developing new processes to support bilateral agreements incites deep anxiety among exporters and importers alike.
Taxing specific countries, such as China and Mexico, may also result in retaliatory trade practices that will impact on the originator countries, their economies and the companies sourcing from them. Reviewing 2017, the World Bank, the IMF and the OECD forecast global economic growth of 3%. The two key risk factors driving their outlook are Brexit and president Trump. For the US, all are forecasting a major jump in economic activity driven by the Trump administration’s promised stimulus package and lower corporation tax. An expanding US economy, and with it a stronger dollar, would be good news for Ireland’s exporters focused on the US.
However, all the international bodies are forecasting a slowdown in the growth of the UK economy in 2017. In the short term, the large-scale uncertainty created by Brexit is expected to impact export demand through the exchange rate as well as through consumer and business confidence.
About 30% of all employment here is in sectors that are heavily related to UK exports particularly SMEs in the agri-food and tourism sectors which are likely to feel the brunt of any negative shocks to trade. A fall in export sales of €500m to the UK is a conservative forecast of the impact of the continued weak sterling and falling UK economic activity in the year.
The forecast by the Economic and Social Research Institute for 5% growth in exports of goods and services seems a good one, as long as the Trump administration doesn’t create a major trade war. Hopefully, the checks and balances of the US political system will see off his bluster.
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