Esmond Birnie: T​he economic impact of Donald Trump's return as US president looks dire for both Northern Ireland and America

In the real world, the actual choice for American president in November 2024, at least in terms of economic (il-) literacy was very uninspiring.

Donald Trump, the Republican Party candidate, repeatedly said that for him tariffs were an object of beauty – a seeming cure all for every economic ill. (Notwithstanding the well evidenced consensus view in economics that tariffs are a bad thing in general, they damage both the country applying the tariff and those countries on the receiving end).

Kamala Harris, the Democratic Party candidate, made some very strange comments that seemed to imply that greedy grocery shops were the main cause of inflation (what about the Russian invasion of Ukraine and the creation of money through Quantitative Easing?).

My argument is that Trump’s second presidency will have a range of economic impacts on Northern Ireland and the UK. Most of these are negative and some could be very negative:

• (very negative) Tariffs reduce Northern Ireland and UK sales to USA.

• (negative) Strong arming by Trump may reduce US investment flows (FDI – foreign direct investment) into NI.

• (extremely negative) Trump’s up-ending of collective security and alignment with Russia makes a People’s Republic of China grab for Taiwan more likely. Given that Taiwan makes 60-90% of the world’s most advanced semiconductors and the presence of so much global shipping lanes through the South China Sea, any such invasion would have an economic impact many times bigger than the 2022 Russian invasion of Ukraine. Quite apart from the horrible human cost, it would be a horrendous shock to the supply side.

• The tax implications of rising to Trump’s challenge to raise defence spending in Europe.

• Possibly the only economic ‘positive’ from a Trump White House could be if he leads to a rolling back of possibly excessive ‘DEI’ (Diversity, Equality and Inclusion) activity in the USA.

That could in turn leads to a reduction in DEI over-reach in the UK (as argued by Pamela Dow, former Cabinet Office Civil Servant, in a recent, November 2024 article in the New Statesman magazine, what the UK has certainly seen in recent decades is a relatively rapid growth in Human Resources employment and it is rather unclear how much benefit this has really generated).

Looking at the tariff impact in more detail.

Here’s an estimation for Northern Ireland:

1. Assume a 20% tariff is applied by the US against NI (UK) goods.

2. Assume NI prices in the US market go up by 20% (ie no reduction in profits by NI firms and no depreciation of £ compared to $).

3. Assume an elasticity of demand (based on an average of various studies) -0.4.

4. This all then implies demand in the USA drops by 8%.

5. Using Northern Ireland Statistics and Research Agency (NISRA) data (December 2024 with some estimation), NI sale of goods to the USA annually is about £1.3bn, 8% of that is therefore about £100m.

6. By implication NI sales and hence output would drop by about £100m, but this is a direct and narrow estimation of the overall impact.

Would such a drop be a big or a small impact? It is ‘only’ about 0.2% of Northern Ireland overall GDP which is about £50 billion. However, if NI’s growth in GDP this year is well under 1% (and this sort of out-turn is quite likely) that would be equivalent to a quarter of overall economic growth. Also, very importantly (and various estimates at the UK-wide level, such as the National Institute of Economic and Social Research, bear this out) 0.2% is probably too narrow an estimate.

Allowing for second or third round effects could push up the overall effect two or three-fold. So, a Trump tariff cost of maybe about £200m-300m annually.

This is because we allow for the possibility of retaliation against the US tariffs and the impact of a general reduction in the growth rate of world trade.

The fiscal policy aspect of increased defence spending in the UK in the Trump era is also an interesting matter.

There will be the undoubted challenge of finding ways to fund such spending. So far international development aid has been reduced but next time it may have to be spending on welfare for working age people (that particular budget line has continued to grow even after the Covid pandemic is over).

On the more positive side of the assessment, we are beginning to see ‘military Keynesianism’. As in the 1930s government spending on re-armament is acting as a boost to the economy.

Some particular Northern Ireland-based manufacturers have or will benefit from this. Not just Thales but Harland & Wolff (the presence of the immense dry dock in Belfast takes on a strategic value) and also smaller firm such as Denroy Plastics. The latter has been making plastic components for Typhoon jets.

In summary then, the overall economic impact of Trump second time round looks rather dire. Both for us and also for America.

Something that the financial markets are now beginning to recognise.”

• Esmond Birnie is senior economist at Ulster University Business School