Trade spat offers silver lining for Irish companies

While pessimism grows that the UK will remain stuck on the 'backstop' and Halloween will bring our worst nightmare of a crash out of the EU, there is reason for optimism that in these turbulent times there is a silver lining for Ireland ‘s traders.

Trade spat offers silver lining for Irish companies

While pessimism grows that the UK will remain stuck on the 'backstop' and Halloween will bring our worst nightmare of a crash out of the EU, there is reason for optimism that in these turbulent times there is a silver lining for Ireland ‘s traders.

Unexpectedly, there has been a shift in international trade patterns which are moving in our favour and may be enough to overcome the immediate dangers for business and the economy from a hard Brexit.

The first of the optimistic signs showed up in the first half of the year, with Europe clearly benefiting from the trade spat between China and the US, which judging by the release from Beijing last Friday of new tariffs on US imports, seems to be escalating.

China announced plans to impose additional tariffs on imports of €66bn from America, including soybeans, cars and oil.

Some of the counter-measure tariffs will take effect starting from September while the rest will come into effect from December 15 according to Friday’s announcement from the Chinese Finance Ministry.

This mirrors the timetable the US has laid out for 10% tariffs on nearly $300bn of Chinese shipments.

Soybeans will be hit with an extra 5% tariff, as will crude-oil imports from the start of next month.

However, motor vehicles will be hit hardest, with an extra 25% duty on US cars kicking in on December 15 and for some class of vehicles another 10% on top.

With existing general duties on cars taken into account, the total tariff charged on US-made cars could be as high as 50%.

In the complex supply chain world of international trade, US company Tesla and Germany’s Mercedes-Benz and BMW are the most vulnerable to the additional levies.

As a consequence of the tit-for-tat trade war, US and Chinese businesses have found it increasingly more attractive to look to Europe to buy and sell goods.

The trend has been confirmed by the EU statistics office, Eurostat, in its August release showing a 10% rise in both imports and exports with the US in the first six months of the year - and a slightly lower increase of 9% in two-way trade with China.

To put this into context, whereas total exports from the EU rose by a modest 3%, exports to the US increased by 11% and to China by 8%.

It is evident that we are looking at a very significant shift in world trade patterns, with Europe starting to gain as the two largest global economies bash away at each other.

The shift to trading into Europe is even more evident in the case of Ireland, where exports to the US increased by 14% and to China by an enormous 67% in the first six months of the year.

In the case of the export increase to China, there has been a surge in exports of computer components, which indicates a shift in sourcing by some of Chinese corporations away from their normal suppliers in the US.

But, international corporations have complex supply chains and it may be that US corporations with manufacturing plants in China are using Irish suppliers to get around the high tariffs on goods between the US and China.

The disagreements with the US have put Chinese exporters under a lot of pressure with foreign sales showing no increase in the first six months.

Lost sales to buyers in America, creating a 12% fall, has been the main issue. For many Chinese companies, the opportunity to shift sales into Europe has prevented business meltdown.

However, the tariff war has also been catastrophic for many American corporations, with export sales to China falling by a massive 19% in the first half of the year.

Traders in both China and the US, with stock on their hands, have been offering better terms to European businesses and, hence, we have seen a surge in imports and exports from both these countries.

With last Friday’s escalation in the tariff war, the trend could continue for the foreseeable future.

John Whelan is managing partner of international trade consultancy The Linkage-Partnership.

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