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'It won't resolve anything': How likely is a post-Brexit trade war between the UK and the EU?

There has been talk of a trade war over Article 16 – but could it actually happen?

IN 1932, IN response to the newly installed Fianna Fáil government’s refusal to continue paying annuities for loans given to Irish farmers in the 19th century, the then-British government put a tax on Irish imports to Britain.

Éamon De Valera’s government responded by hitting British imports to Ireland with tariffs, kickstarting an Economic War between the two countries. The trade war would last until 1938, and would hit Ireland a lot harder than the UK.

In the end, despite the Irish government eventually winning a reduction in the amount they had to pay the British, the Economic War would damage the Irish economy, particularly larger farmers, for whom Great Britain was the main export market.

Today, almost 90 years later, there has been talk of another trade war involving the United Kingdom and Ireland, but this time Ireland is part of a larger adversary in the form of the wider European Union.

The dispute centres around the Brexit Withdrawal Agreement, which came into effect this year, after the UK voted to leave the EU in 2016.

The issue of contention relates to Northern Ireland, and whether or not the UK government will suspend key parts of the Withdrawal Agreement, which experts say will trigger a response from the EU, which in turn could start a trade war.

But does either side want a trade war? How likely is it to happen? And what would a trade war look like, and how would it affect Ireland?

Avoiding a hard border

After the UK voted to leave the EU in 2016, years of negotiations took place (both between the EU and UK, and domestically within the UK itself) before Brexit formally happened in January 2020.

A transition period – during which nothing changed – was in place until 31 December last year, before the Trade and Cooperation Agreement came into force, which handles the post-Brexit relationship between the EU and UK.

During negotiations between the two sides, one of the main sticking points was how trade would be handled with Northern Ireland, which is formally part of the UK but also on 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 Agreement 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 effectively remains in the EU customs union and the single market for goods.

Northern Ireland still adheres to EU standards, and so is allowed to trade freely with Ireland and the rest of the EU.

However, because the UK has left the EU, checks must now take place on goods coming into the North from England, Scotland and Wales, which has led to claims that the border has essentially been moved to the Irish Sea – angering unionists.

Misgivings

Since it came into force, the UK government and unionist parties in Northern Ireland have expressed serious misgivings about the Protocol.

The UK’s Chief Brexit Negotiator David Frost said back in May that “the Protocol is presenting significant challenges for many in Northern Ireland”.

The DUP has called for it to be scrapped, while businesses in Northern Ireland have said that elements are working, but that the Protocol is also causing them problems.

The EU subsequently proposed changes in October, which it said would result in an 80% reduction in checks for retail agri-food products arriving in the North from the rest of Britain.

However, the UK wants further concessions, and last month it was threatening to trigger Article 16 of the Protocol, which would suspend elements of it entirely.

This move – seen as highly aggressive by the EU – would likely result in a retaliation, which it has been speculated could lead to an eventual trade war between both sides.

So what would happen if the UK triggered Article 16?

According to Edgar Morgenroth, Professor of Economics at DCU Business School, the European Union would respond “very robustly” if the UK were to do this.

“They may not [trigger Article 16] at all, because ultimately I think the message has come through that the EU would respond very robustly. So that’s where we get into that trade war situation,” he said.

From there, he sees three main options the EU could choose in response.

“The easy option is for the countries through which a lot of the UK trade goes… to simply start controlling UK lorries very vigorously,” he said.

“You then get, essentially, a situation where without having imposed anything, trade kind of comes to a halt.”

A second option would be for the EU to pick out specific products and to target them with tariffs, which would affect different parts of UK society.

The third option, Morgenroth said, would be for the EU to “just go all out and say well we’re now trading on WTO [World Trade Organisation] rules and all the tariffs kick in.”

This would mean tariffs on a huge range of UK products, and would be the most aggressive of the 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 ti-for-tat tariffs were placed on products, it would hit businesses across the EU and the UK.

Professor Morgenroth said that the UK would be in a worse position if a trade war took place, given that it is a significantly smaller economy than the EU as a whole.

However, due to the close proximity and trading relationship between Ireland and the UK, a trade war would likely hit Ireland the hardest out of all the EU countries.

“The fact that we trade more with the UK than other EU countries means that, whatever happens, if there is a trade war we’ll be more affected,” said Morgenroth.

He said that the UK could put on pressure by starting to inspect goods more thoroughly than they had before.

“If they simply went and started inspecting things more thoroughly and creating havoc that way, Ireland would be particularly hit because we still have a substantial amount of transit traffic through the UK and they could hurt us that way,” he said.

“Just simply by delaying stuff, because a lot of the perishables are still going through the UK, they don’t go the direct route because of speed advantages.”

According to Neil McDonnell, CEO of the Irish Small and Medium Enterprise Association, Ireland is very closely aligned with the UK in terms of its products, and a trade war would damage the economy here.

“[A trade war] is not going to resolve anything,” he said.

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“And the price is always paid on the domestic side. People are always thinking, ‘Oh. We’ll screw you with tariffs’, but tariffs only hurt your own importers.”

McDonnell said that it would be very difficult for Irish importers to change suppliers from UK-based companies to EU ones, considering how closely the nations are aligned.

“So on the consumer tastes stuff, you look at everything that’s in your cupboard: your breakfast stuff, in food, in clothing and consumer goods, you know, even down to our power sockets, you know, our three pin 240 volts stuff.

“That’s all stuff that 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. It’s actually a tough ask.

“It’s very easy for the Department of Enterprise to say change your supplier. But if you’re actually on the ground doing this stuff, it’s far harder to do.”

How likely is a trade war?

Last month, the UK government seemed to be on the cusp of triggering Article 16, and Irish and EU officials and politicians were on high alert.

Foreign Affairs Minister Simon Coveney told RTÉ’s This Week programme on 7 November that the UK looked set to do so.

He said that “whether that is part of an ongoing negotiating strategy to try to change, amend or end the Protocol is hard to know, but certainly the signals are not good”.

However, since then, the rhetoric from the UK has been significantly dialed down. UK Prime Minister Boris Johnson faces a number of domestic issues, including allegations of Tory sleaze, and recent allegations of a Downing Street Christmas party having taken place last year amid Covid-19 restrictions.

Professor Morgenroth said that he didn’t expect the UK to trigger Article 16 any time soon.

“I didn’t expect and I don’t expect the UK to trigger Article 16 this side of Christmas, if they ever were going to,” he said.

“It risks disrupting Christmas supplies even more than Brexit has already done.”

Morgenroth added that, economically, the EU is stronger than the UK, and that the UK would not be able to dictate trading terms in the future for this reason.

“At the end of the day the EU is strong, it holds the cards here, and the UK needs to get used to the fact that they’re the junior partner in this,” he said.

“They’re not going to dictate the terms to the EU. They’re very small in comparison.”

Neil McDonnell agrees, saying that the UK would come off worse in any trade conflict.

“Nobody wants to see any sort of trade conflict between Ireland and the EU,” he said.

“However, what I would say is, if there is that kind of trade battle, it won’t be like Dev and annuities in the ’30s. On this occasion, it will be far worse for the UK than it would be for the EU, though I appreciate it would be very rough for Irish businesses.”

About the author:

Cormac Fitzgerald

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