Irish economic planners will need to navigate a new international landscape

In 1917, Vladimir Lenin was purported to have said that "there are decades where nothing happens, and there are weeks where decades happen". Although there is some debate over the source of the quote (its origins may even rest with Karl Marx), the events of early 2021 would seem to validate its implication.

In the space of a few short weeks we found ourselves dealing with a virus that had mutated, empty supermarket shelves due to Brexit, and a largely disorganised riot on the steps of the Capitol Building in Washington DC.

Tactically, the consequences of these geographically disparate events compel Irish businesses to synchronise their response to correspond with the ongoing rollout of Covid-19 vaccines and the emerging logistical challenges posed by Brexit.

Strategically, the election of Joe Biden as president of the United States and the shifting tectonic plates that are sculpting 21st century geopolitical engagement will need to inform the decisions of Irish business leaders and policy-makers.

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Despite what has been made of Biden’s Irish ancestry and his association with the country, decision-makers in Ireland need to be acutely aware of competing interests and his ambition to put middle-class Americans at the centre of both his domestic and foreign agendas.

This, I expect, will see the concerns of the American middle-class reflected in foreign policy decision-making, where tangible results such as job-creation, the resurgence of domestic manufacturing and increases in average income will be prioritised.

On paper at least this policy doesn't appear to deviate too far from the "America first" strategy pursued by Donald Trump. In practice, however, Biden's policy will look beyond the repatriation of US multinationals and their profits.

After all, to stymie China’s rapid assault on America’s economic and political hegemony the US needs to re-engage with Europe to create a common agenda rather than pull the rug from under the feet of its traditional allies.

As his stimulus plan outlines, Biden will focus ostensibly on the creation of a sustainable economy that will not just promote the creation of “green jobs” but focus on issues such as increasing the minimum wage, extending tax credits for low-income earners, providing affordable healthcare and, possibly, regulate big tech.

Leverage

From the outside it looks as if Biden wants to work with international partners to aggressively tackle climate change, re-establish global economic rules and promote workers' rights, and in doing so gain leverage over China in areas such as climate action, social justice and human rights.

Time will tell if the plan succeeds as the president struggles to win over friends and foes both at home and abroad.

However, as the EU has become more comfortable asserting its independence following Brexit and agreeing an investment deal with China, Irish decision-makers face the prospect of developing a strategy that accounts for the EU’s ambition to affirm itself and Biden’s desire for multilateralism.

Global tax reform is the most immediate concern, and area in which the Biden administration seems keen to lead on through a process led by the Paris-based Organisation for Economic Co-operation and Development (OECD).

To date the Irish government’s preference has been for an OECD-led solution to taxing digital companies rather than one driven by the EU. Ireland’s motivation for such an outcome is obvious given the fact that corporation tax now accounts for more than €1 in every €5 collected by the State.

However, an international agreement has so far been out of reach, raising the risk of the EU and the US imposing independent reforms, which makes Ireland particularly vulnerable to regulatory change.

Although most observers expect that some form of agreement will be reached, following the French government’s recent application of a digital service tax, the threat of regulatory divergence is real.

Digital tax

Notwithstanding the fact that the EU and the US might be close to agreeing a digital tax, they remain wide apart on issues surrounding the regulation of big tech.

The European Commission unveiled its regulatory proposal in December 2020, as part of the Digital Services Act, which would allow EU regulators to compel companies like Google and Facebook to abide by the legislation if local authorities have not acted effectively.

Although the final details are not expected to be published before 2023, given that US multinationals like Apple, Google and Facebook have headquartered their European operations in Ireland, any such regulation could act as another tightrope for Irish policy-makers to navigate.

Their diplomatic high-wire balancing act could be made more difficult if TikTok also sites its European HQ in Dublin as planned.

Apart from its troubles in the US, data watchdogs in France, Italy, the Netherlands, Denmark and the UK have been investigating the Chinese tech giant’s compliance with GDPR which precludes the transfer of user-data beyond the EU.

Although Biden is unlikely to exert the type of pressure Trump imposed on European nations to distance themselves from Huawei, given the EU’s desire to become a regulatory superpower, and the determination of the US to maintain its economic dominance, Irish economic planners and business strategists will need to carefully navigate their way through a new international landscape.

Prof Thomas C. Lawton is director of the Global Competitiveness Institute at University College Cork