Did you notice the Irish economic data this week? Possibly not, as we have become a bit blase about the relentless good news which the headline figures bring.
The unemployment rate in February fell to 3.9 per cent, matching its record low and around levels which economists classify as full employment. The domestic economy is growing solidly. The exchequer figures continued their relentless improvement, with tax revenues running 12 per cent up on last year. If you add in the continuing impact of the Apple windfall, the rise is 25 per cent.
This is all being noticed in Brussels and in Washington, putting Ireland in some danger in the months ahead from a US president – and other EU member states – who both feel we are profiting at their expense.
Ireland has become the little country that has been doing too well. So well, indeed, that it has now left us in some danger: in the cross hairs in Washington, but with limited sympathy from the EU side if we do take a hit. The economic figures have not just been good in recent years - they have been exceptional and that has drawn attention to what exactly has been going on. Keeping the head down has not been an option.
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There was one key sign of approaching danger this week in the decision by the US side to write in a reference of the large US trade deficit in goods with Ireland in their read out of a phone call between secretary of state Marco Rubio and Tánaiste Simon Harris – even though the Irish side is adamant that the issue was never specifically brought up. The briefing note of the call from the US Department of State said: “They discussed the US priority to address the US-Ireland trade imbalance.”
To underline the point, in a “proclamation” signed this week by Donald Trump on Irish-American Heritage Month, amid all the stuff about Irish-America there is a reference to his administration working “to correct trade imbalances with the European Union”.
Somewhat ominously from a Dublin viewpoint, it adds: “Our historic relationship with Ireland presents an opportunity to advance fairer trade policies and stronger investment opportunities that benefit both nations.”
This all clearly shows that, whether or not it is brought up in the White House next week, the huge US deficit in goods trade with Ireland – the fourth largest on its measure with any other country – is a live issue for the Trump administration.
[ Trump administration again points to US-EU ‘trade imbalances’ ahead of Taoiseach’s visit ]
Ireland will argue, with some justification, that there is a wider two-way economic relationship than just trade in goods, also involving large payments by US digital service giants of cash back to the US. American companies have done well out of being here – and there is significant investment from Irish companies in the US, too.
But, while Trump’s focus on trade deficits is odd, Ireland is part of a chain of production in the pharma sector which leaves the US with expensive drugs but little tax revenue from the big players. And Europe’s regulation of the tech industry, where again Ireland is central, is also a big thing in Washington. So two key Irish sectors are in the firing line.
His administration is starting to look like the gang who can’t shoot straight – businesses are up in arms and the markets are wobbling
For Ireland there are immediate dangers here and there are longer-term ones. Trump has threatened tariffs on Europe, though in handling the on-again, off-again saga with tariffs on Mexico and Canada this week – most are now postponed for a month and after that who knows? – his administration is starting to look like the gang who can’t shoot straight.
Businesses are up in arms and the markets are wobbling. The rhetoric of a cunning strategy for the US to get its way is now running into the hard economic reality that trade relationships and investment patterns cannot be remade in a few short weeks.
So it would be unwise to try to foresee precisely what tariffs Trump will aim at the EU and thus Ireland, but equally stupid to not regard the risk as anything but serious. Were the threat of 25 per cent tariffs on EU imports to go ahead, for example, Irish domestic food and drink exporters to the US would be hit hard.
And, depending on whether tariffs were a short-term move to try to get the EU to do other things, or a longer-term imposition, they could also change the numbers for the large pharma sectors production here for the US market.
In response, the Government and senior officials are planning a Brexit-style response to help the companies who are hit, assist them to find new markets and try to take short and longer-term measures to boost competitiveness. All sensible stuff.
But – if tariffs are a longer-term US strategy – it can’t subsidise a large part of the exporting sector forever. And for companies who have big sales in the US, trade missions to Wigan or Wuppertal can only take them so far in the short term, even if developing other markets makes perfect sense.
Ireland also needs to think about the longer-term. The president of the world’s biggest economy – and our key investment partner – wants to rewrite the trade rules and change the structure of the international economy. He wants more key products such as drugs and semiconductors made at home. He may or may not succeed, but he has other tools at his disposal apart from tariffs, including tax and just flexing US economic muscle.
And we have already seen big US pharma companies such as Eli Lilly and Pfizer, both huge investors here, talk about investing more in the US or moving production undertaken overseas back to the US. These kind of production switches take a few years, but you can see the risks.
This is a wake-up call to focus on competitiveness here, particularly pushing ahead with key energy, housing and water investments and boosting the education and research.
In the meantime, expect a bumpy ride. It is hard to see how Ireland gets through the next few months without some collateral damage. A Trump-induced trade war between the US and EU may be on the cards, with Ireland certain to be hit in the crossfire.
And next week we will see the extent to which the US president’s rhetoric will focus specifically on Ireland and the argument that our success has come at a cost to America.
In Trump’s black-and-white world, this would not be a good place to be. The stellar economic figures we are seeing are likely to be as good as it gets for now.
