Wednesday, 1 February 2017

How dependent is Ireland on trade with the UK?

Proinnsias Breathnach:  On Thursday last, Professor Ted Malloch, adviser to Donald Trump’s election campaign and would-be US ambassador to the EU, was interviewed by Seán O’Rourke on the latter’s RTE Radio morning programme.  During the course of the interview, Malloch – predictably an ardent Brexit fan – stated that 45% of Ireland’s exports go to the UK and used this alleged level of dependence on the UK to argue that it would be in Ireland’s interest to also leave the EU.  By remaining in the EU, Ireland, he said would be “an island in the middle of the Atlantic unconnected to the larger global economy”.
This was a rather strange depiction of a country which has been identified in various surveys in recent years as one of the most globalised countries in the world. Yet Seán O’Rourke allowed this arrant nonsense to pass without challenging it.
Despite all the debate about the impact of Brexit on the Irish economy, ignorance of the actual level of connectivity between the Irish and British economies remains widespread, including, ominously, among policy makers and supposedly authoritative commentators.  Thus, for example, Noel Whelan wrote the following in his regular Irish Times column in January 2016: “The Irish economy is unique in that it’s part of the euro zone but earns most of its living from the sterling zone and the dollar zone”.
It doesn’t help that the Central Statistics Office (CSO) does not provide definitive data on Ireland’s foreign trade – an extraordinary state of affairs in a country which is so dependent on such trade.  The CSO has a section (called, misleadingly “External Trade”) which gathers very detailed data on merchandise trade but none at all on trade in services which makes up about one half of Ireland’s total exports.  Instead, data on services trade is acquired as a by-product of the compilation of Balance of Payments data from a separate CSO section.
It might seem straightforward to simply add together the merchandise and services trade data produced by these two separate CSO sections to arrive at a figure for aggregate foreign trade.  However, the two sets of data are derived by very different methodologies and are not directly comparable.
This is indicated by the fact that the Balance of Payments section also produces data on merchandise trade which vary very significantly from those provided by the External Trade (i.e. merchandise trade) section.  This is illustrated by the following table:

Thus, the merchandise exports total under Balance of Payments is 22 per cent higher than under External Trade while the imports total is 14 per cent higher.  The net effect is that the trade balance under Balance of Payments is 39 per cent higher than under External Trade.  It seems likely that if the CSO External Trade section used a similar methodology for collecting services trade data as it uses for merchandise trade, the resulting totals would be similarly lower than those emanating from the Balance of Payments section.  However, there is no way of knowing that this is definitely the case and, if it is, what the level of difference might be.
When it comes to breaking down the aggregate level of foreign trade by destination countries (for exports) and origin countries (for imports), there is no alternative to using the merchandise trade data compiled by the CSO External Trade section, as the Balance of Payments data do not provide any geographical breakdown for merchandise trade.  However, they do provide a geographical breakdown of services trade, and, bearing in mind the methodological caveats involved, this is used in conjunction with the External Trade merchandise data to calculate the total trade figures in the tables below.
Table 2 shows the shares of Irish exports which went to the UK, the Rest of the EU, and the USA in 2015.  In that year, just 16.8% of Irish exports went to the UK, a far cry from the 45% share claimed by Ted Malloch.  The share of the rest of the EU was over twice that of the UK.  This shows clearly how important it is for Ireland to remain part of the EU after Brexit.  Ireland is as much dependent on the USA as an export market as it is on the UK.
Table 2 also disproves Noel Whelan’s assertion that Ireland earns “most of its living from the sterling zone and the dollar zone”.  Assuming that these zones refer to the UK and USA, between them they only account for one third of Irish exports and less than the share taken by the Rest of the EU (most of which goes to the Eurozone).
The share of Ireland’s imports sourced in the UK (13.7%) is even less than the share of Irish exports going to that country (Table 3).  While the same applies to the Rest of EU, the latter is still more than twice as important as the UK as an source of imports to this country.  The USA is a substantially more important import source than the UK, reflecting the high level of penetration of the Irish economy by American transnational firms.

Brexit will inevitably have a negative impact on the Irish economy, although there are growing indications that this could be at least counterbalanced by post-Brexit relocation of British-based activities to Ireland especially if, as seems likely, there will be a “hard” Brexit.  Clearly an Irish withdrawal from the EU would be much more harmful, given our much higher level of integration with our continental neighbours.
Ted Malloch’s gross exaggeration of Ireland’s dependence on the UK is typical of the torrent of “alternative facts” emanating from the Trump camp.  Malloch himself is no ignorant simpleton from the American outback.  A highly-qualified academic, he has held positions in a number of universities (including Oxford and Yale) and has served on a range of prestigious institutions.  Most tellingly, he is a current member of the academic advisory council of the ultra-rightwing think tank, the London-based Institute of Economic Affairs.  The presence of such influential, clever and capable alt-right ideologues in the Trump administration is seriously disturbing.

Proinnsias Breathnach is Senior Lecturer Emeritus in Geography at Maynooth University

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