An international shift away from free trade is a risk to the Irish economy, Tánaiste Leo Varadkar has warned, as anger in Europe towards a massive industrial subsidy programme in the US adds to existing trade tensions due to the fallout from the invasion of Ukraine.
At a meeting of EU trade ministers in Brussels, Mr Varadkar appealed for the union to remain a “global advocate for free trade”, amid pressure for it to join a race to subsidise strategically-important industries to prevent them relocating elsewhere.
“I think what we’re seeing is a pause or a setback in globalisation and free trade. I don’t think it’s a permanent reversal, but it’s clear that a lot of countries around the world are becoming a little bit more protectionist. And that’s not good for Ireland, not good for a country that has built its prosperity on free trade,” Mr Varadkar told The Irish Times. “We’re very vulnerable to whatever the global mega-trends are.”
Washington’s landmark Inflation Reduction Act offers generous subsidies to consumers who buy electric cars that are manufactured in North America, a step that has alarmed EU countries who fear it will further disadvantage home-grown companies already facing far higher energy costs than US firms.
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Concerns that the legislation could incentivise manufacturers to leave Europe for the US were bolstered by reports that American car manufacturer Tesla may pause plans to build electric batteries at its factory in Berlin.
“Many of the green subsidies provided for the in the act discriminate against EU automotive, renewable, battery, and energy-intensive industries,” EU trade commissioner Valdis Dombrovskis said after the meeting. “These are serious concerns for the EU.”
The EU is set to raise the issue with Washington at the upcoming EU-US Trade and Technology Council, though there are concerns a solution will be hard to find before it comes into force on January 1st, given the Biden administration had to wrestle the legislation through Congress.
Large EU countries are already pushing for the bloc to offer its own subsidies in an attempt to retain key companies, though critics fear a “subsidy race” would disadvantage smaller countries, be costly for taxpayers and ultimately be inefficient due to the risk such programmes favour well-resourced and connected companies rather than innovative upstarts.
At the meeting ministers warned of the need not to be drawn into a subsidy spiral or back into a trade war with the US, undoing progress to reset relations with the EU by the Biden administration following the friction of the Trump years.
EU countries have described the protectionist policy from the US as particularly unwelcome at a time of deep politicisation of trade, when sanctions on Russia over its invasion of Ukraine and Moscow’s retaliation by cutting energy supplies to the EU have led to a reassessment of trade reliance on China.
The US has pressured European countries to avoid the export of crucial technology to China and to reduce economic dependence on Beijing, warning that recent experience demonstrates the risk of reliance on authoritarian regimes – a difficult ask as China is a major EU trading partner.
Mr Varadkar said that he expected trade would be on the agenda if he meets Mr Biden in March for the usual St Patrick’s Day visit when he becomes taoiseach again.
“What I would envisage saying to President Biden on behalf of Ireland and on behalf of the European Union is that this is a very dangerous world, and the US and the EU have to work together. When it comes to trade we have the same competitors, and the EU and US should be at one on these issues.”
