A global trade war is almost more threatening for Ireland than Brexit given that we would have no control over it, it has been argued.
Fears of a trade war between the United States and China - the world's two largest economies - returned to haunt markets yesterday as China retaliated against Washington's plans to slap tariffs on Chinese goods, sending US stock futures tumbling and sinking European and Asian equities.
Kieran McQuinn, research professor with the Economic and Social Research Institute (ESRI), stressed Brexit was a big concern and at present likely remained the greatest external threat to the Irish economy.
But he said the Government has some input into how the UK's EU exit pans out via the negotiations. That won't be the case if one of the worst trade disputes in many years turns into a full-scale trade war between the world's two economic superpowers, he said.
Given the open nature of our economy, any fall in global GDP as a result of a trade war would have a like-for-like impact on Ireland, the ESRI believes.
"To a certain extent, we have some control as far as Brexit is concerned through the EU and the way in which we seek to influence negotiations, but obviously a global trade war between China and the United States is very much outside of our control," Mr McQuinn told the Irish Independent.
"We don't have any real input into that. In that sense, it's almost even more threatening for us. Brexit is still a very important consideration."
If world GDP were to fall by 1pc as a result of a trade war, so to would Ireland's, the ESRI forecasts. "Because we're so open, any impact on global GDP, and any trade war obviously would have a negative impact on global GDP, the Irish economy would be hit on an almost one-for-one relationship," Mr McQuinn said.
"The general overall impact on global GDP is the first round impact, and then more specific impacts of more specific tariffs would have an additional impact. If it was a particular agricultural commodity that was hit by a tariff - even one not directly applicable but applicable to some third country - then it could even be more than one-for-one."
China hit back quickly yesterday against the Trump administration's plans to slap tariffs on $50bn in Chinese goods, retaliating with a list of similar duties on key US imports including soybeans, planes, cars, beef and chemicals.
The speed with which the trade struggle between Washington and Beijing is ratcheting up - China took less than 11 hours to respond with its own measures - led to a sharp sell-off in global stock markets and commodities.
"The assumption was China would not respond too aggressively and avoid escalating tensions. China's response is a surprise for some people," said Julian Evans-Pritchard, senior China economist at Capital Economics, noting that neither side had yet called for enforcement of the tariffs. US-made goods that appear to face added tariffs in China, based on an analysis of Beijing's list, include Tesla electric cars, Ford's Lincoln models, Gulfstream jets made by General Dynamics and Jack Daniel's whiskey.
Unlike Washington's list, which was filled with many obscure industrial items, China's list strikes at signature US exports, including soybeans, frozen beef, cotton and other key agricultural commodities produced in states from Iowa to Texas that voted for Donald Trump in the 2016 presidential election.
Mr McQuinn said that given the nature of Ireland's open economy, it is vulnerable to any changes in global trade patterns. "Trade is one that could have a very adverse impact on the Irish economy," he said. "We expect a strong performance this year for domestic and external reasons, but obviously if you start getting into the middle of a tense and lengthy trade war, then the global dynamic would very quickly dissipate." Ratings agency Standard & Poor's said yesterday that a trade war could "drag down [global] investor confidence, spending, and economic growth".
Beijing's announcement triggered heavy selling in global financial markets, with US stock futures sliding 1.5pc and US soybean futures plunging nearly 5pc and on track for their biggest fall since July 2016.
The dollar briefly extended early losses, while China's yuan skidded in offshore trade.
Hours earlier, the US government unveiled a detailed breakdown of some 1,300 Chinese industrial, transport and medical goods that could be subject to 25pc duties, ranging from light-emitting diodes to machine parts. The US move, broadly flagged last month, is aimed at forcing Beijing to address what Washington says is deeply entrenched theft of US intellectual property and forced technology transfer from US companies to Chinese competitors - charges Chinese officials deny.
The tariff list from the office of US Trade Representative Robert Lighthizer followed China's imposition of tariffs on $3 billion worth of US fruits, nuts, pork and wine to protest at new U.S. steel and aluminium tariffs imposed last month by Trump.
Publication of Washington's list starts a public comment and consultation period expected to last around two months. "It's more of a game of brinkmanship, making it clear what the cost would be, in the hopes that both sides can come to agreement and none of these tariffs will come into force," Mr Evans-Pritchard added.
Investec Ireland said it is worth noting that the US-imposed tariffs aren't coming into effect immediately, but it nonetheless added: "It's beginning to look like a trade war is well and truly under way."
The ESRI is predicting the Irish economy will grow, in GDP terms, by 4.8pc this year, and 3.9pc in 2019.
Mr McQuinn said that even with the possibility of a full-scale trade war, growth would be "robust" this year thanks to domestic sources of growth.
But he added the only way the Government can prepare for any impact on global GDP is to ensure the country's cost and competitiveness base is kept in check.
"You just have to ensure that your economy is as flexible as possible and that cost and competitiveness indicators are kept in check, so that the economy is ultimately adaptable to whatever goes on in the global environment. Beyond that there isn't a huge amount you can do from a macro perspective." (Additional reporting Reuters)