The economic war between the US and China will cause problems for Ireland

On Friday, China’s foreign minister, Wang Yi, warned US secretary of state Antony Blinken, who is visiting Beijing, that the United States and China could choose between “stability or a downward spiral” in their relations. While some of the building tensions relate to political factors, notably Taiwan and the war in Ukraine, economics is also at the centre of this, as the mood in Washington turns increasingly negative about China’s economic strategy and its impact on the US.

As a key staging point for the international activities of US companies – and with an increasing trade and investment relationship with China, Ireland is stuck right in the middle of this row. This will be difficult if Joe Biden wins the November election – if Donald Trump wins, it could be near impossible, as Washington increasingly draws the lines between those it considers its allies and those it does not.

The backdrop to this is wider fears that China, struggling to keep economic growth buoyant, is flooding the West with “green” technology in areas such as solar panels and electric vehicles and is building stronger positions in key areas of technology. As well as the US, the European Union is also now considering its options, with tariffs threatened on EVs, for example. The charge against China is that many of the exports entering western markets are being sold cheaply due to direct or indirect support from the Chinese state. In turn this is leading to moves to increase government support for companies in the US and Europe- and pressure for more of this in future.

The extent of America’s economic obsession with China should not be underestimated. The headlines focus on specific stories – such as this week’s passing into US law of a demand that Chinese company ByteDance sells its ownership of TikTok within nine months, or faces a ban on the app being used in the US. Whether the American paranoia on TikTok’s links with the Chinese government and its resulting political and security concerns are justified or not are arguable – but this is beside the point from Ireland’s point of view.

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Irish discussion on Simon Harris’s persona on this social media channel focuses on a debate about whether he has nothing better to be doing. The US perspective on a TikTok Taoiseach would take an entirely different position – focusing on security issues – and of course the company has a big operation in Dublin.

All this is part of a wider political story. Last December, in a landmark document, the Democrats and republicans in the US Congress signed up to a report drawn up by the House select committee on the strategic competition between the US and the Chinese Communist Party. It called for a fundamental re-evaluation of US policy towards China, saying that “never before has the United States faced a geopolitical adversary with which it is so economically interconnected”.

The bipartisan nature of the report is hugely significant, according to Henry Farrell, an Irishman who is a professor at Johns Hopkins University in Baltimore and who has written extensively on what he dubbed “weaponised interdependence”, the use of economic power in an interlinked world. The tone of the report, he says, is that “everything that the US can do to hold back Chinese economic development is a good thing” and the mood in Washington is of both sides of the House trying to outdo the other on this topic.

China is an increasingly important economic partner for Ireland, multiplying in scale in recent years in terms of trade and also featuring some landmark Chinese investments here

In this context, while Biden’s approach may be more strategic – and his meeting Chinese president Xi Jinping in the US late last year did dial down the rhetoric for a period – he will be conscious of not letting Trump outflank him on the China issue. The congressional report – with its call for ending normal trade relations with China, sweeping restrictions on US investment there and new measures to build up American industry – will be a template for the presidential election debate on China.

There are costs here, too for American business. Emily Benson of the Centre for Strategic and International Studies cautioned that ending normal trade relations and imposing new tariffs on imports from China would “produce big negative downsides for the US economy.” But the US – despite business lobbying – seems willing to pay the price. And this has implications for those, such as Ireland, who consider themselves to be US allies. As Farrell puts it, there is a strong feeling in Washington now that “you are with us or against us”. Senior Irish officials heard this message on recent visits to Washington, including the annual St Patrick’s Day round.

China is an increasingly important economic partner for Ireland, multiplying in scale in recent years in terms of trade and also featuring some landmark Chinese investments here. The growth in Irish exports to China was interrupted last year, when merchandise exports fell to €9.5 billion from almost €14 billion the year before – this appears to be largely due to a drop in computer chip exports, and work by the Central Bank points to the likely impact of US restrictions on the sale of some advanced chips to China introduced in late 2022. And this row is rumbling on, with the Financial Times reporting this week that the US is pushing “allies” to stop exporting technology and skilled employees to help advanced chip development in China, notably by Huawei.

This kind of change underlines the potential impact of political factors on Ireland. And, as Farrell points out, the State has specialised in areas such as high tech and pharma which are right at the centre of the international war for economic dominance, where the US and China – as current numbers one and two – are the key players. As supply chains are restructured and countries focus on security and control and dealing only with “friends”, the globalised world in which Ireland has prospered is changing fast. There are opportunities here for Ireland but there are also threats. Who knows what it means, for example, for a big US company such as Apple, which arranges much of the international manufacture of its mobile phones in China from its Irish base?

A country which has prospered for many years from being all things to all people is facing some new and difficult questions, particularly if Donald Trump is the next US president – but also if Joe Biden remains in office. Last St Patrick’s Day, the taoiseach went to the White House, while the Minister for Finance went to Beijing. But what happens, in future, if Ireland is forced to choose more and more between the US, where most of the State’s inward investment comes from, and China, a huge potential source of growth?