How do you come to grips with a populist presidency in a vital economic partner? With Donald Trump riding high in the polls and the Democrats in upheaval, Ireland may soon face just such a prospect. Trump and JD Vance, his pick for vice-president, doubled down on their plans for an aggressive form of economic nationalism at the Republican Party convention this week. What they would do in practice remains debatable. But there are more than enough warning signs to believe that Trump mark two might be a lot more serious in economic terms for Ireland – and for the world – than the first version.
The rhetoric of the new American economic nationalism is extreme. At its centre is the claim, as Trump put it in his speech on Thursday, that “We have long been taken advantage of by other countries, often being considered our allies. We lose jobs and revenue, they gain everything, and wipe out our businesses.”
Maganomics would aim to combat this by reducing economic links with the rest of the world. Trump has promised tariffs - special taxes - on imports into the US and an effective declaration of economic war with China, identified by all sides in the US as an economic foe. There is talk of trying to weaken the US dollar (even if this runs counter to other parts of the policy) which would make imports more expensive and help US exporters. And Trump promises what he calls “the largest deportation operation in the history of our country” with threats to send millions of illegal migrants back home and severely tighten rules for new arrivals.
Ireland is the EU country most exposed to exports outside the union, mostly to the US. This leaves us more vulnerable to trade wars and tariffs and to the overall health of the US economy
The spin is that this would leave American jobs to be filled by Americans. The reality is that it would cause complete chaos in many sectors which rely on illegal workers, and more generally on inward migration. Maganomics could send inflation soaring and the US into recession. Congress, or the US courts in terms of immigration policy, could prove a constraint. But what is planned would have a dramatic impact on the American economy and society, with unpredictable economic and political knock-ons across the world.
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This highlights the central contradiction of economic nationalism – which is that policies which promise to help the working class (blue-collar workers as they are called in the US) will damage this very group through lower economic growth and higher inflation. Just look at the Brexit remorse in the UK. That there is such support for these kind of policies is because the opposite approach – the relentless globalisation we have seen over the past 40 years or so – has left many of these groups behind, while enriching those at the top of pile. A new approach could hardly be any worse, many voters appear to reckon.
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Trump is not doing a solo run on economic nationalism, even if his version is extreme. The Biden administration has also jousted with China and offered big incentives to invest at home. And in Europe, as well as Brexit, we are seeing immigration policies tightened and a move to restore government supports for big industrial investments and ensure that critical assets like the production of microchips is undertaken on European soil.
Calibrating the impact of a Trump presidency on Ireland is difficult, because we don’t know exactly what he will do. But Irish economic growth relies significantly on the US and our economic links to America are much greater than almost any other EU country. Recent figures show that Ireland is the EU country most exposed to exports outside the union, mostly to the US. This leaves Ireland more vulnerable to trade wars and tariffs and to the overall health of the US economy, where a volatile period could well be in prospect.
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And then there are the specifics. To take just one example, towards the end of his last presidency – in May 2020, a few months into Covid – Trump identified the extensive manufacturing of drugs in Ireland for the US market. He told Fox News: “It’s not only China, you take a look at Ireland. They make our drugs. Everybody makes our drugs except us… we’re bringing that whole supply chain back.” Trump did not act on this. In fact, his tax policy has been identified as encouraging pharma investment here and boosting tax and jobs here at the expense of the US. But what might he do this time?
Maganomics could send inflation soaring and the US into recession
There is a lot at play. In the first five months of this year, just less than one-quarter of Ireland’s total goods exports were chemicals and pharmaceuticals sold to the US. While this figure overstates the importance of the sector to the wider economy here, it is a big employer and a vital contributor of corporation tax. A 10 per cent tariff would be significant, as well as hitting other Irish exports to the US in areas such as food and drink.
[ Poll finds US voters think they will be better off financially under Donald TrumpOpens in new window ]
A second Trump presidency would also be a poor backdrop for foreign direct investment from the US; arguably US companies would carry on investing overseas regardless, particularly to “friendly” countries like Ireland, but we don’t know how American tax and industrial policy might be changed. Trump has again talked about cutting the US corporate tax rate to as low as 15 per cent – which would abolish Ireland’s tax advantage – though what he could actually implement here is open to question.
Maganomics made flesh may not be as extreme as the theory, but it might not look too pretty either. Populist economics, by its nature, is hard to fit into an economic model. The rhetoric is central; the policy reality unpredictable. But in the financial markets, they are already putting in place the "Trump trade” and US long-term interest rates are rising in the expectation that Trump’s policies will send inflation higher. As we survived Brexit, if not unscathed then not severely damaged, and with growth strong despite all that is going on in the world, it appears that the big economic risks of a Trump presidency are not being taken too seriously here. After this extraordinary week, it is surely now time to do so.