US protectionist policies could cut Irish GDP by 3.5%: ESRI

Escalating protectionist policies—particularly from the United States—could have a significant negative impact on the Irish economy over the next five to seven years, according to a new working paper from the Economic and Social Research Institute (ESRI).

The research, co-authored and funded by the Department of Finance, examines two key scenarios: unilateral tariffs, where the US imposes tariffs of between 10 and 25 per cent on global trade partners including the EU without retaliation; and bilateral or ‘tit-for-tat’ tariffs, where those partners respond in kind.

It also examines a separate scenario involving non-tariff barriers, such as tighter US regulatory requirements that restrict market access for exporters.

Under the tariff scenarios, Irish Gross Domestic Product (GDP) could fall by as much as 3.5 per cent below a no-tariff baseline, while Modified Domestic Demand (MDD) could decline by up to 2 per cent. If non-tariff barriers were imposed, GDP and MDD would be 3 per cent and 1.5 per cent lower, respectively, than the no-barrier baseline, as per the ESRI research.

The paper suggests that Ireland’s traded sector—defined as one where at least 50 per cent of output is exported—is likely to be disproportionately impacted by protectionist measures due to its strong linkages with the global economy. The results show that production in the traded sector could fall by as much as 4 per cent, compared to a 2 per cent decline in the domestic sector.

The report states that this could have outsized effects on the wider economy, as employees in the traded sector are generally more skilled and better paid, contributing significantly to both aggregate demand and income tax revenues.

If US protectionist measures were to target sectors critical to the Irish economy, the impact could be even more severe than our scenarios suggest, the paper cautions.

“Our research shows that protectionist policies have the potential to significantly impact the Irish economy, with the traded sector disproportionately affected. This, in turn, would lead to a significant impact on the labour market, consumption and the domestic economy as a whole. Protectionist policies may also prompt multinationals to relocate to the US, posing further risks to the Irish economy and public finances,” Dr Paul Egan, an author of the working paper and a Research Officer at the ESRI, said in a release.

Fibre2Fashion News Desk (HU)