As the challenges of Ireland’s relationship with its nearest and most important trading partner, the UK, remains firmly on the economic and political agenda, there are lingering concerns about how our small island on the edge of Europe can also square its dependence on the world’s two greatest super-powers.
Tensions between the US and China show no sign of cooling and, with the increasingly partisan and punitive nature of US policy-making, the Irish government appears to be treading a delicate line as one of the few nations that has grown trade both east and west.
The consensus seems to be that Ireland will soon be faced with a diplomatic choice that will necessitate turning off investment from one side, most probably the east. Given the importance of foreign direct investment (FDI) to the Irish economy, this is neither feasible nor necessary.
Ireland occupies an interesting and comfortable place in the economic world order. We are a very small country but, as the statistics bear out, with our global connectivity and significant investment assets we manage to punch well above our weight in both diplomatic heft and in attracting FDI.
The flux in FDI caused by Covid-19 has only served to reinforce our dependency on the US and China, as sectors of the economy face the pernicious impacts of the pandemic. The pressing need to preserve Ireland’s FDI employment, which represents 20 per cent of the workforce, has never been greater.
Much of that employment is, of course, US-focused, with an impressive $8 billion being invested by US companies in the Irish economy in 2019.
Yet China’s impact is gaining considerable traction in Ireland with bilateral trade of €17 billion in goods and services, making it our fifth largest trading partner. There was a 50 per cent increase in Chinese FDI last year.
One of the many harsh lessons that have been learned from the pandemic is that the global economic outlook can change in a blink, reinforcing the need to succour all global investment sources. Who could have foreseen even a few months ago Google’s divestment from its Dublin office plans? This contrasts with TikTok’s investment in its new $500 million Irish data centre.
Of course, it would be imprudent and bordering on reckless not to consider the risks to our inward investment streams, given the geopolitical ramifications we have seen played out domestically with our near neighbours.
The UK’s policy makers, now outside the EU, have taken punitive action against Huawei in response to US demands in their trade negotiations. It is very feasible that the US could take a similar hardline stance towards Ireland, adversely impacting Huawei’s investment in Ireland’s 5G network which is now set to play a crucial role in our economic recovery.
Ireland’s membership of the EU, however, affords a certain level of collective protection. If a sanction were to be imposed on Ireland, it then has to be imposed on the whole of the EU, making it much more difficult to single out a member. Yet that alone does not provide Ireland with the prerequisite protection from the US trade war.
EU countries can still face US wrath over their use of technology from China, with Germany under extreme pressure to exclude Huawei from its 5G network. At a time when Washington wants to see its Nato contributions rise, Germany must balance a multitude of diplomatic concerns, and there is no guarantee of where Berlin will place its strategic interests.
Yet neither Tiktok nor Huawei have faced any significant backlash or fury in Ireland. Is it the fact that Ireland is not a major security partner of the US that may allow for these investments to be overlooked? Or is it simply that our strong trade credentials showcase Ireland as attractive to companies irrespective of global tensions, thanks to our fiscal policy, talent base, connectivity, standard of living and EU access outweighing protectionist threats?
There is also no telling what the upcoming US presidential election might bring. Would a change in president mean a change in policy? It’s uncertain, despite Joe Biden’s more moderate outlook, if or how policy on China would change. As for his relationship with and approach to Ireland, that is for another day.
Ireland’s focus must remain on leveraging every investment asset available to it in support of economic recovery. It is not realistic to think that a nation as small as Ireland could ignore the opportunities presented by Beijing or indeed Washington. The ongoing complexities and flare-ups between the EU and UK over the Brexit trade talks make the point plainer still.
Our small island on the edge of Europe, dependent on sparring Titans, will have to continue to tread that fine line.
Kilian Cawley is trade director for Republic of Ireland at OCO Global’s