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Naomi O’Leary: Ireland’s risky exposure to China comes home to roost

Europe Letter: Hardened EU and US policy puts Ireland at risk of collateral damage in trade war

The European Commission has begun an investigation into whether to impose punitive tariffs on imports of cheap electric cars from China, which it says are benefiting from unfair state subsidies to the detriment of local car manufacturers.

This hardened position, announced by EC president Ursula von der Leyen last week, immediately raised concerns that China could hit back with tariffs or other punitive trade measures of its own. When asked about the potential for counter action from Beijing shortly afterwards, economy commissioner Paolo Gentiloni said it needed to be taken seriously. “I think there’s no specific reason for retaliation, but retaliation is always possible,” he said.

The German car industry is considered particularly at risk as it has deep supply chain ties with China. But there are also vulnerabilities much closer to home. Ireland was the fifth largest exporter to China in the EU in 2022 after Germany, France, the Netherlands, and Italy, according to Eurostat. China is the sixth largest destination for Irish exports, exceeding closer destinations such as France.

It has been a deliberate policy of the Irish government over the last decade to grow exports to China, with efforts particularly focused on increasing agricultural exports though successive trade missions to Beijing and Shanghai, most recently in May.


In reality agricultural products only account for a small fraction of Ireland’s exports to China. The bulk of exports from Ireland to China are integrated circuits or microchips. China buys almost 70 per cent of all exports of semiconductors from Ireland, according to the Central Bank of Ireland.

This trend began in 2015 when exports to China under the category “electrical machinery, appliances, and others of similar kind” suddenly shot up. China replaced the United States as the biggest buyer of these goods from Ireland in 2018, and a Parliamentary Budget Office report last year estimated the sales to have reached just under 3 per cent of gross national income.

A study published by the Mercator Institute for China Studies this summer flagged the risks of this development. Report author Alexander Davey noted a lack of expertise on China within the Irish Government and Civil Service and a certain incoherence in policy as trade and agriculture factions push for increased exports while on foreign policy the Government has used the EU to “provide cover” for criticism of China’s human rights record.

The report cautioned of the risks of “sudden political upheavals” arising from Russia’s invasion of Ukraine, a potential invasion of Taiwan or a deterioration in relations between Beijing and Washington. “In the unlikely event of a trade war between the EU and China, small open economies such as Ireland are set to lose most,” it said.

Another risk noted was “trade overdependence”, particularly in microchips. Either an export restriction by the United States on its producers in Ireland, such as Intel; or a Chinese government ban on US microchips made in Ireland “would have a significant impact on Irish jobs and corporate tax revenues”, the report warned.

Has this already come to pass?

In its latest quarterly bulletin the Central Bank of Ireland noted there had been a sudden decline in trade in the first half of this year, notably in ICT exports to China.

According to Central Statistics Office data, Ireland’s exports to China this July were almost half what they had been in the same month a year earlier. Exports to China slumped to €5.4 billion between January and July compared to €8.4 billion for the same period a year earlier.

The Central Bank bulletin noted that in October 2022 the administration of US president Joe Biden had announced restrictions on the export of advanced semiconductor technology to China. The ban applies both to US-based firms and any company around the world that uses US semiconductor technology in its manufacturing.

“Since US-owned multinational enterprises account for a significant share of exports from this sector in Ireland, it is possible that the restrictions are playing a role in the weakness in Ireland-China ICT goods exports to date in 2023,” the bulletin said.

It noted that data was not publicly available to confirm this. All in all, however, it described the development as “a reminder of the wider risks to the Irish economy from the concentration of exports in a small number of highly globalised, multinational-dominated sectors”.

It further warned: “This characteristic of the economy leaves it exposed in the event of a downturn in global demand, industry or firm-specific structural changes or an acceleration of geo-economic fragmentation.”