IN 1932, IN response to the refusal of the newly installed Fianna FÃ¡il government to continue paying annuities for loans made to Irish farmers in the 19th century, the then British government imposed a tax on Irish imports into Britain.
Ãamon De Valera’s government responded by hitting British imports into Ireland with tariffs, sparking an economic war between the two countries. The trade war will last until 1938 and will hit Ireland much harder than the United Kingdom.
Ultimately, although the Irish government eventually got a cut in the amount it had to pay the British, the economic war would hurt the Irish economy, especially the big farmers, for whom Britain was the mainstay. export market.
Now, almost 90 years later, there has been talk of yet another trade war involving the UK and Ireland, but this time Ireland is part of a larger adversary in the form of the ‘Enlarged European Union.
The dispute is over the Brexit Withdrawal Agreement, which entered into force this year, after the UK voted to leave the EU in 2016.
The issue of the conflict is about Northern Ireland and whether or not the UK government will suspend key elements of the Withdrawal Agreement, which experts say will trigger a response from the EU, which in its opinion. turn could spark a trade war.
But does either side want a trade war? How likely is this to happen? And what would a trade war look like and how would it affect Ireland?
Avoid a hard border
After the UK voted to leave the EU in 2016, years of negotiations took place (both between the EU and the UK, and nationally within the UK itself ) before Brexit officially happens in January 2020.
A transitional period – during which nothing has changed – was in place until December 31 of last year, before the entry into force of the trade and cooperation agreement, which manages post-Brexit relations between the EU and the UK.
One of the main sticking points during negotiations between the two sides was how trade would be handled with Northern Ireland, which is officially part of the UK but also the island of Ireland.
Both sides stressed the need to avoid a hard border on the island of Ireland, in order to protect the Good Friday deal and prevent a return to conflict. However, they disagreed on how to achieve this goal.
Eventually an agreement was reached, when the Protocol on Ireland and Northern Ireland (known as the Northern Ireland Protocol) was signed in 2019.
Under the protocol, Northern Ireland remains in effect in the EU customs union and in the single market for goods.
Northern Ireland still adheres to EU standards and is therefore allowed to trade freely with Ireland and the rest of the EU.
However, as the UK has left the EU, checks must now be carried out on goods entering the North from England, Scotland and Wales, leading to claims that the border was mainly moved to the Irish Sea – which angered trade unionists.
Since its entry into force, the British government and the Unionist parties in Northern Ireland have expressed serious reservations about the protocol.
UK chief Brexit negotiator David Frost said in May that “the protocol presents significant challenges for many in Northern Ireland”.
The DUP called for its removal, while businesses in Northern Ireland said things were working, but they also had problems with the protocol.
The EU then proposed changes in October, which it said would result in an 80% reduction in checks on retail agri-food products arriving in the North from the rest of Britain.
However, the UK wants further concessions and last month threatened to trigger Article 16 of the protocol, which would suspend parts of it entirely.
The move – seen as very aggressive by the EU – would likely lead to retaliation, which speculation has been made could lead to a possible trade war between the two sides.
So what if the UK triggers Article 16?
According to Edgar Morgenroth, professor of economics at DCU Business School, the European Union would react “very vigorously” if the United Kingdom did so.
“They can not [trigger Article 16] at all, because at the end of the day I think the message got across that the EU would react very vigorously. So that’s where we get into this trade war situation, âhe said.
From there, he sees three main options the EU could choose in response.
âThe easy option is for countries through which a lot of British trade passesâ¦ just start to control British trucks very vigorously,â he said.
“So you basically get a situation where without having imposed anything, the trade sort of comes to a halt.”
A second option would be for the EU to select specific products and target them with tariffs, which would affect different parts of UK society.
The third option, Morgenroth said, would be for the EU to “do everything possible and make it clear that we are now negotiating on the WTO. [World Trade Organisation] rules and all tariffs come into effect.
This would mean tariffs on a huge range of UK products and would be the most aggressive of options on the table. The UK would have similar options it could take to respond to any EU action.
Impact on Ireland
If a situation developed where tariffs were imposed on products, it would hit companies in the EU and UK.
Professor Morgenroth said the UK would be worse off if a trade war were to take place, given that it is a significantly smaller economy than the EU as a whole.
However, due to the closeness and trade ties between Ireland and the UK, a trade war would likely hit Ireland the hardest of any EU country.
“The fact that we trade more with the UK than with other countries in the EU means that whatever happens if there is a trade war we will be hit more,” Morgenroth said.
He said the UK could lobby by starting to inspect goods more thoroughly than before.
“If they would just go and start inspecting things more deeply and creating havoc that way, Ireland would be particularly affected as we still have a significant amount of transit traffic through the UK and they could harm us that way, âhe said.
âJust delaying things, because a lot of perishables still go through the UK, they don’t go the direct route because of the speed benefits. “
According to Neil McDonnell, CEO of the Irish Association of Small and Medium Enterprises, Ireland is very close to the UK in terms of products, and a trade war would hurt the economy here.
“[A trade war] will not solve anything, âhe said.
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âAnd the price is always paid on the domestic side. People always think, ‘Oh. We’re going to screw you up with the tariffs, but the tariffs only hurt your own importers.
McDonnell said it would be very difficult for Irish importers to switch suppliers from UK-based companies to European companies, given the degree of alignment of nations.
âSo on consumer tastes, you look at everything in your closet: your breakfast stuff, in food, in clothes and consumer goods, you know, even up to our outlets, you know, our three prong 240 volt stuff.
âThat’s all we have in common with the UK. And it’s very difficult to change that by going to a French or Spanish or German supplier. This is actually a difficult question.
âIt’s very easy for the Department of Enterprise to say to change supplier. But if you’re actually in the field doing this stuff, it’s a lot harder to do.
What is the likelihood of a trade war?
Last month, the UK government appeared to be on the verge of triggering Article 16, and Irish and EU officials and politicians were on high alert.
Foreign Secretary Simon Coveney told RTÃ’s This Week show on November 7 that the UK appeared ready to do so.
He said that “whether this is part of an ongoing negotiating strategy to try to change, amend or end the protocol is difficult to know, but the signals are certainly not good.”
However, since then the UK’s rhetoric has eased considerably. British Prime Minister Boris Johnson faces a number of domestic issues, including allegations of sleazy Tory and recent allegations that a Downing Street Christmas party took place last year amid Covid-19 restrictions .
Professor Morgenroth said he didn’t expect the UK to trigger Article 16 anytime soon.
“I did not expect and do not expect the UK to trigger Article 16 on this side of Christmas, if it ever does,” he said.
“This risks disrupting Christmas supplies even more than Brexit has already done.”
Morgenroth added that economically the EU is stronger than the UK and the UK would not be able to dictate trading terms in the future for this reason.
âAt the end of the day the EU is strong, it holds the cards here, and the UK has to get used to being the junior partner in this area,â he said.
âThey are not going to dictate conditions to the EU. They are very small in comparison.
Neil McDonnell agrees, saying the UK would fare worse in any trade dispute.
“Nobody wants to see some kind of trade dispute between Ireland and the EU,” he said.
“However, what I would say is that if there is this kind of trade battle, it won’t be like Dev and annuities in the 1930s. On that occasion, it will be a lot worse for the UK. only for the EU, although I understand that it would be very difficult for Irish companies. “