Trade protectionist measures likely to have significant negative impact on Irish economy

March 21, 2025

Macroeconomics
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Today (Friday, 21 March 2025) the Economic and Social Research Institute (ESRI) published a working paper, co-authored and funded by the Department of Finance, that assesses the macroeconomic impact of protectionist policies on the Irish economy.

  • Given both the political and economic uncertainty around protectionist policies, this paper considers both unilateral tariffs, where the US imposes tariffs of between 10 and 25% on the rest of the world and the EU without response, as well as bilateral tariffs, where the rest of the world and the EU responds with reciprocal, or ‘tit-for-tat’, tariffs.
  • The paper also examines the potential impact of a 10% non-tariff barrier imposed by the US on the rest of the world. This would include measures such as changes in US regulatory requirements which would restrict market access opportunities for Irish and global exporters.

Key findings:

  • The tariff scenarios considered in this paper could lead to the levels of Gross Domestic Product (GDP) and Modified Domestic Demand (MDD) falling by as much as 3.5% and 2% below the no-tariff baseline respectively over the next 5 to 7 years.
  • The imposition of non-tariff barriers from the US to the rest of the world would also have a significant negative impact on the Irish economy, with the levels of GDP and MDD falling by as much as 3% and 1.5% below the no-barrier baseline respectively over the next 5 to 7 years.
  • The paper suggests that the traded sector* of the economy is likely to be disproportionately impacted by these protectionist measures due to its strong linkages with the global economy. The results show that the level of production in the traded sector falls by as much as 4% from the no-protectionist policy baseline over the next 5 to 7 years. This is compared to a 2% fall in domestic sector production for the same scenario.  
  • The disproportionate impact of these policies on the traded sector has the potential to further negatively impact the overall economy because those employed in the traded sector tend to be more educated and better paid than the overall workforce, making them an important source in driving aggregate demand and income tax revenues.
  • If US protectionist measures target specific sectors that are important to the Irish economy, this could lead to a greater decline in the traded sector, and consequently, the economy as a whole. This would likely be even more severe than our scenario analysis suggests.

Dr Paul Egan, an author of the working paper and a Research Officer at the ESRI, said:

“Our research shows that protectionist policies have the potential to significantly impact the Irish economy, with the traded sector disproportionately affected. This, in turn, would lead to a significant impact on the labour market, consumption and the domestic economy as a whole. Protectionist policies may also prompt multinationals to relocate to the US, posing further risks to the Irish economy and public finances.” 

*A sector is defined as being traded if at least 50% of total final uses are exported.