Wednesday 18 September 2019

Dan O'Brien: 'If Trump makes us choose between agriculture and exports, farming will have to be a sacrificial lamb'

'Any calculation of our interest should dictate that the Government does everything possible
to avoid a China-style trade war with the US.' Photo: Reuters
'Any calculation of our interest should dictate that the Government does everything possible to avoid a China-style trade war with the US.' Photo: Reuters
Dan O'Brien

Dan O'Brien

Ireland could be facing a very painful choice in the near future. The choice looming is between the farming sector, which is in long-term relative decline, and the non-agricultural export sector, which is many times bigger and the main driver of growth in the Irish economy.

The reason this choice between agriculture and the economy's main engine may have to be faced is US President Donald Trump. He is demanding that Europe give American producers better access to the EU market. He is threatening to add to his protectionist measures against European producers if he doesn't get what he considers to be a good deal from the EU (EU members share the same trade regime with non-member countries). As he has made abundantly clear with China, Trump doesn't bluff in trade disputes, having imposed large import tariffs on most Chinese goods in recent weeks and months.

If the US-EU dispute escalates along the lines of the ongoing US-China trade war, Ireland and the rest of the EU member countries will face a choice: give better terms to American goods entering the European market or lose access to the US market for goods made in Europe. For Ireland and the prosperity of the entire country, the latter would be the worst outcome.

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The US is Ireland's biggest national export market by far. It is among the fastest-growing. Last year goods worth €40bn were shipped across the Atlantic from Ireland. The total value of goods and services exports to the United States (excluding agriculture) was €50bn. These exports were worth four times Ireland's total food and drink exports to the entire world last year (€12.7bn).

Ireland's dependence on US investment is arguably even more important than trade with that country. American multinationals based here are the most dynamic component of the economy and the drivers of Ireland's worldwide export growth. It is unclear what effect a breakdown in transatlantic economic relations would have on the US-owned multinational sector in Ireland, but it is safe to say that it would not be positive. It could potentially be devastating.

If, in order to avoid such an outcome, the EU and Ireland gave Trump what he wants - the reduction of tariffs by both sides on each others' goods - there would be benefits for the Irish economy. It would make American imports cheaper for Irish consumers. It could also make Irish exports more competitive in the US. Most importantly, it would safeguard the hundreds of thousands of jobs that depend on the US market and US companies.

But it would have one major downside. That downside is for the farming sector, which is highly protected from lower- priced non-EU produce.

For Ireland and the rest of the EU to open up the European market to agricultural produce from a producer as big as the US would be unprecedented. There can be little doubt that it would change the nature of farming in Europe. While that would benefit consumers, and in particular the poor who spend more of their incomes on food, it would negatively impact farmers, particularly in the beef sector. It would also hit food producers, even if this could potentially be mitigated for some by importing from non-EU sources.

But if the choice comes down to further trade liberalisation with the US or having Trump do to the EU what he is now doing to China, the least damaging outcome for Ireland would be the former. That is not only because the Irish economy is so dependent on the US, it is also because Ireland is no longer an agrarian economy.

Agriculture's declining importance is one of the main stories of Ireland's modern economic history. This is to be seen in the employment numbers for primary agriculture (mainly farmers and farm labourers). According to the 1926 Census, over half those employed at that time were toiling on the land. This share fell to a third by 1966. By the time of the last census in 2016, it was down to one in 20 workers.

Not everyone involved in agriculture works directly on a farm. A broader measure of the 'Agri-Food' sector from the Department of Agriculture, which includes food and drink manufacturing, suggests that employment share was 7.7pc in 2018. But, again, that is on the wane. At the turn of the millennium it was 12pc.

In terms of exports, agriculture once dominated almost completely. Until the 1950s around 90pc of goods leaving Irish ports were live animals or food and drink products. It was not until 1973 - the year Ireland joined the EEC - that the share fell below 50pc. Today it stands at just 9pc. It is half that when the value of services exports is included.

Trump has rapidly escalated his trade confrontations with other countries. It is not clear that the Government and officialdom have fully thought through the implications of this for Ireland.

The most immediate implication would be for the Government to decide what position it takes with the other members of the EU as they collectively decide on how to deal with Trump's demands. Any calculation of Ireland's interest - based on current and future prosperity - should dictate that the Irish Government does everything possible to avoid a China-style trade war with the US.

Taking such a position would present political difficulties. The farming sector, which is a very well organised lobby, would demand that protectionist measures be maintained.

If Trump pushes the EU to make a choice it will be divisive. But it is important to have an open discussion when countries face difficult and painful decisions. It is even more important that vested interests do not influence the debate in a way that causes decisions to be made that are inimical to the greater good.

Hopefully, the choice will not have to be made. But the direction of travel is not reassuring. "Tariffs are a great negotiating tool," Trump declared on Tuesday. Sooner or later he is likely to threaten to use them more aggressively against Europe. If he does, a hard choice will have to be made.

Irish Independent

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