Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

With the agreement of the Leas-Cheann Comhairle and the House, I will share my remaining time with the Minister, Deputy Chambers.

I am pleased to have the opportunity to address Dáil Éireann today on the issue of where global trade stands. It is now obvious we are facing a trade development that is a major challenge for the global economy and one that casts a dark shadow over prospects for the economy. Tariffs, to put it simply, are taxes on consumption and investment and they are bad for economic growth and jobs. To frame last week’s announcement, it marks the intensification of a dynamic that has been under way for some time. Global economic activity is becoming increasingly fragmented along political lines. The Government’s view is that the priority must be to de-escalate the current situation and to avoid increased trade disputes.

That said, this is not something the Government, or even the European Union, can fully control. It is therefore important to take stock of where our economy is in order to evaluate how well we might absorb this policy-induced shock. It comes on top of a series of unprecedented shocks to the Irish and global economies. Our economy has proven resilient and this resilience looks set to be tested once again. However, its resilience is clear and continued. It is evident in our labour market, where the employment rate has never been higher and the unemployment rate has never been lower. In addition, the inflationary shock has passed and, unlike previous episodes, we are now seeing some signs of the moderation of inflation. Prices are still high, with the most recent data on inflation showing it at just 1.8% in March. Having said that, we are conscious that the price level remains higher than before the pandemic and we understand the effect this is having on businesses and living standards.

The strength of the Irish economy is also reflected in the public finances. Last week, the Minister, Deputy Chambers, and I published the first Exchequer returns of this year. The data show year-on-year growth under all the main tax headings and an underlying Exchequer balance of almost €1 billion. This reflects the Government's efforts to run budget surpluses where possible so that we can respond when needed in more difficult times. While we face into the current challenges from a position of strength, it goes almost without saying that we will not become complacent. We cannot do so. The world is now changing rapidly. It is likely that the fragmentation of trade along political lines will now interact with other structural challenges that are more long-term in nature, including ageing populations, high levels of public debt and other changes involving climate change and the roll-out of artificial intelligence. Against this backdrop, it is essential that we continue to be careful with how we manage budgetary policy to respond to this time of change.

On the recent tariff announcements, we are now seeing changes that are historic in nature. Additional tariffs of 50% on Chinese imports to America have been announced, taking the total tariff to more than 100%. To state the obvious, this now means the tax on the import is now higher than the price of the imported Chinese goods. Overnight, the President has also outlined his intention to introduce further tariffs. All this will affect the global economy in both direct and indirect ways. It will reduce trade between the US and other countries, limiting those countries' ability to increase living standards through mutually beneficial trade, and it will increase prices for people, particularly in the United States, lowering real incomes. Finally, the reduction in purchasing power across different countries will inhibit their ability to trade with other countries, indirectly impacting trade elsewhere. The risk is of lower levels of trade, lower living standards and lower growth. That is why all these moves are deeply regrettable. As the Taoiseach said a moment ago, they trigger lose-lose outcomes.

This is why the European Union and the Government are clear in their message. Through the EU, we stand ready to negotiate with the US Administration on tariffs because we firmly believe that dialogue and de-escalation provide the best path forward. We all hope that this approach can bear fruit and that a more normal trading relationship between the EU and the US can still be restored. However, there is no guarantee of that and, notwithstanding the effect of such negotiations, it is likely that we will not return to the pre-existing rules of trade. International relationships and trading patterns have been fundamentally changed and European countries, including Ireland, must and will adapt.

The recent Letta and Draghi reports comprehensively outlined the work we in Europe can do to strengthen our economic foundations and improve our growth. We must now do this work at a time of great uncertainty. This represents opportunities for Europe, including Ireland. These challenges can be overcome if we maintain the commitment to working together and multilateralism that has helped us to achieve so much since we joined the European Community five decades ago. The Irish and European economies have thrived on co-operation. Mutual respect, trade and a rules-based economic order remain the path to improved living standards. The world economy and the European economy can absorb this shock, but only if we adapt and adjust. We can prevail with our fundamental values intact and our economies in a strong position.

Regarding the effects on the Irish economy, the Government published recent estimates to allow us to better understand the potential impact of tariffs under a range of different scenarios. Depending on the scenario, as well as future countermeasures, modified domestic demand - in other words, measuring the economy excluding the effects of larger companies - is the best measure of economic growth. It would be between 1% to 2% below a non-tariff baseline of growth over the coming years. This would be accompanied by lower than assumed employment growth, which would be around 2% to 3% lower than we had hoped. In other words, employment levels could be around 55,000 to 85,000 jobs lower. This is an important piece of work. It gives us our best guide to where we could be with what we know now.

The Government must be able to understand the likely channels and the possible economic impact to respond as best we can. This is an important piece, although not the only piece, of analysis of this very demanding economic situation.

Let me turn to what the Government is doing and will do. We have been a significant beneficiary of free and open trade and foreign direct investment. With this in mind, the announcements, as I outlined, will affect our outlook. However, notwithstanding the current uncertainty in the trading environment, companies have very deep roots in Ireland. They have benefited from the very highly skilled workforce and the pro-enterprise environment we offer, which still make us a highly competitive prospect for investment. However, we must do better. We must focus on how we can best protect ourselves against the current uncertainty by exploring how we could potentially diversify our trading relationship across the world. We must continue to support the largest employers in the State and small- and medium-sized domestic enterprises up and down the country. We must focus on the factors within our control and influence. This means investing in human capital, and infrastructure for the future, which the Minister, Deputy Chambers, will refer to. It also refers to the funds we have in place to help us build up safety in our public finances and respond to the challenges we are now confronting.

We are now in a deeply uncertain period for the international economy and the implications for Ireland in the coming years are not yet fully clear. The policy decision announced last week marks the end of the many mutually beneficial decades of free trade enjoyed by the US and the EU. The global economy benefited enormously from this trade, and hundreds of millions of people in the least developed economies were lifted out of absolute poverty owing to the opportunities created by more trade and deeper integration into the global economy. We are one country that has seen its living standards grow significantly from how we participated in this trading system. At an EU level, two-way trade now amounts to just over €4 billion per day, highlighting the importance of the EU-US economic relationship. We will continue to make the case for free trade and for the benefits it brings for all sides, a case the Tánaiste is undoubtedly making today.

The Government is determined to protect our economy, to support and protect jobs and to keep our public finances safe. We will evaluate the steps necessary to do this, but we need to avoid doing anything that could create further difficulties for us down the line. In other words, the actions the Government needs to take are ones that also need to be sustainable during this major period of change. This is why we will continue to engage extensively with all who are affected, building on what has made our economy resilient to recent shocks, while investing to further boost our competitiveness for the next wave of international and domestic investment. Despite the storm clouds that are clearly gathering, I wish to emphasise to the House that we are approaching the current challenge from a position of strength and we will use this to our advantage in the weeks, months and years that await. We have weathered many storms now in recent years. We have done this by working with our partners in the European Union, by managing our public finances in a sensible way, by creating a pro-enterprise economy and by keeping our economy and our society open trade. In a very changing world, I am convinced these elements will continue.

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