To claim that the recent global unrest’s effects on global economies are dwindling would be inaccurate. On the contrary, as Paschal Donohoe, Minister for Public Expenditure, observed during the recent National Economic Dialogue, we are witnesses to a constantly shifting global scene, characterised by escalating geopolitical conflicts, expanding economic nationalism and restructured international supply chains.
The possibility of Donald Trump’s continued presidency, especially given his recent conviction, enhances the sensation that more unpredictable times are imminent. The task of deciphering the implications of these occurrences proves complex. However, some predominant trends are slowly coming into sight, one of them being the rapidly transforming landscape of foreign direct investment.
It’s time for Ireland to reassess, as the tactic generally used to attract significant US businesses here is exhibiting severe signs of wear. Last year, former Taoiseach Leo Varadkar highlighted one such trend, warning nations including Ireland against embarking on a ‘subsidy war’ to draw investment and offering financial aids to multinationals to establish new facilities.
The changes arisen post the Ukraine war and escalating tensions with China involve large economies, primarily led by the US, viewing investment increasingly as a major geopolitical tool. Notably, this is seen in computer chips production, crucial for a wide array of applications from weaponry to artificial intelligence. Both the US and EU are eager to shift this production from the Far East, Taiwan being one notable producer, to their own regions. Should this pattern extend to other sectors, Ireland runs a risk of getting cornered as the major economies make their financial power known.
While a Trump presidency might further exacerbate US-China tensions, it is certain that regardless of who holds office, the discord between the world’s two largest economies will persist.
In an attempt to incite domestic investment, the US has taken the lead by committing substantial financial incentives through the Inflation Reduction Act and the Chips and Science Act (2022), both promoting investment in clean tech, green energy, pivotal electronics sectors and research.
Investments in manufacturing within the US significantly increased last year, doubling in comparison to 2022. This development has led to concerns amongst US subsidiaries in countries like Ireland, as they fear their position within the company’s ranking for future investments has been undermined. The competitiveness that exists between other firms is mirror in multinational companies where national units battle against other world-wide subsidiaries for financial support.
There has been a noted shift in recent years to localise investments, coupled with initial trade sanctions targeting principally China. This trend signifies a retreat from globalisation, marking a move away from a focus on low-cost production. The American ban on selling advanced chips to China, specifically from companies based within the United States or those utilising US semiconductor technology in their production line, negatively impacted Irish export figures last year. This decline was possibly linked to Intel’s production.
While a potential Trump leadership could potentially exacerbate the US-China conflict, it is evident that regardless of who becomes the next president, the tensions between the two largest economies globally are unlikely to recede.
The regulations around where US firms can sell their chips fall under bigger strategic decisions regarding its future production location. Following the introduction of the 2022 US legislation, Europe eased its State aid guidelines in crucial industries like electronics and clean technology. As a result of these changes, the German government was able to provide more financial support for Intel’s new investment in Magdeburg, a project that has faced environmental setbacks. Unfortunately, Ireland was overlooked for the new investment, despite Oranmore in Galway being a potential site for construction, although Intel has committed to minor additional investment there.
Despite these challenges, Ireland continues to hold a strong position. As the European base for numerous large US corporations and a state perceived as supportive by Washington, Ireland still possesses significant leverage.
Intel is now considering offloading a minority stake in its Leixlip manufacturing facility to financial investors, aiming to generate funds for its global spending objectives as well as tackling the new political objective to amplify supplies from US companies. Determining the impact on Leixlip will take some time, highly contingent on how the investors expect their investment returns. Essential to this plan is that Intel keeps enhancing the plant in Ireland, but future decisions will be influenced by the new minority investor.
Ireland needs to strategise amid this fierce international competition for investment. The escalating subsidy war introduces risks, as potent governments such as the US and Germany can straightforwardly outdo Ireland. As a mid-level contender, Ireland can’t directly compete against the superior powers.
The Irish Government has opposed immense supplementary subsidies from European governments to industry, and convincing the EU to follow suit is likely to be challenging. The forthcoming report from former Italian president Mario Draghi on European competitiveness is expected to dictate the course of action here, presenting a challenge for Irish economic diplomacy.
However, Ireland still holds favourable cards. As the European base for numerous large US companies and a state perceived as pro-American, it offers a promising proposition. Also, cut-throat competition in crucial sectors, such as computer chips, won’t be universal.
But there’s a sense of complacency in Ireland’s key areas, following the upsurge of inward investment after international tax amendments in 2015. Essential infrastructural projects like clean water and green energy have been slow to progress. It’s still uncertain whether Ireland can exploit its considerable offshore wind potential, a crucial resource. Even in areas such as higher education and research where Ireland traditionally excels, urgent decisions are required. A much-needed shift away from procrastination across all sectors is required as the nation appears to have a wealth of strategies and documents, but a deficiency in execution.
For Ireland to entice investment, it must live up to its reputation of being clean, green, educated, and politically stable. It can’t afford to fall into a cycle of indecision and failure, similar to the Children’s Hospital scenario, regarding the necessary investment to achieve this.