Wednesday 15 August 2018

Ireland 'highly exposed' as Lagarde warns Trump on trade war fallout

US president Donald Trump Photo: Reuters
US president Donald Trump Photo: Reuters

Robin Pomeroy and Colm Kelpie

Europe and the International Monetary Fund (IMF) have urged US President Donald Trump to step back from the brink of a trade war, after the resignation of his top economic adviser emboldened those encouraging him to push ahead with tariffs on imported steel and aluminium.

The departure of Gary Cohn, seen as a bulwark against Mr Trump's economic nationalism, hit shares, oil and the dollar yesterday, as investors saw an increased likelihood of tit-for-tat trade measures that would depress global growth.

Mr Trump plans to impose a duty of 25pc on steel and 10pc on aluminium to counter cheap imports, especially from China, that he says undermine US industry and jobs.

IMF chief Christine Lagarde warned that in a trade war, everybody loses.

"In a so-called trade war ... nobody wins, one generally finds losers on both sides," Ms Lagarde said.

One loser could potentially be Ireland, experts believe, given the open nature of the economy here.

JJ Walsh, head of trading group strategy at Bank of Ireland, said the current US proposals apply to only about 2pc of the total imports to the country.

But he warned of the potential for escalation.

"The risk is that the US broadens the range of products, and the EU retaliates in kind. That could start a proper trade war and increase protectionism," Mr Walsh told the Irish Independent.

"If it did escalate into a trade war, it would be negative for global trade, it would be negative for investment, for growth, and Ireland as an open economy, we're highly exposed to international trade, so we would be impacted."

Mr Walsh said about two-thirds of Ireland's exports to the US are pharmaceuticals, and it is not known whether they would be hit by a trade war.

The IMF said Canada - the largest supplier of steel and aluminium to the United States - and Europe, whose car exports Mr Trump has threatened to target, are both likely to impose retaliatory tariffs on US goods.

Mr Trump appears ready for war. "When we're behind on every single country, trade wars aren't so bad," he said at a news conference with Swedish Prime Minister Stefan Lofven.

Conall Mac Coille, economist with Davy Stockbrokers, said there was little or no immediate impact, but speculated interest rates could be pushed higher if the situation was to escalate.

"The immediate impact will be pretty small for Ireland but the bigger danger is that it leads to a much bigger trade war, which leads to inflation which might even lead central banks to push up interest rates more quickly because of protectionism. It's bad for growth ... and that's a bigger concern," Mr Mac Coille said.

In his first tweet yesterday, Mr Trump showed no sign of backing down, saying the United States had lost more than 55,000 factories and six million manufacturing jobs and let its trade deficit soar since the first Bush administration.

(Additional reporting Reuters)

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