IF YOU’RE A bit fed up of hearing about tariffs the last few days, it’s understandable.

There’s been a barrage of coverage since Donald Trump casually kicked off a global trade war during the week.

Falling stock markets, panicking politicians, scrambling business executives. There’s a lot to take in.

So we thought this time, we’d be a bit more relaxed when talking about tariffs, and take a look back at Ireland’s use of them.

A brief reminder – tariffs are basically taxes which countries impose on goods or services with other nations.

They are normally used in an effort to support domestic industries. The logic basically goes – foreign goods are undercutting local business. Make foreign goods more expensive – consumers will instead buy from local businesses, who will then become stronger.

Of course, that’s in theory. We’re going to take at how that worked in practise in Ireland.

After becoming largely independent in the 1920s, the Irish state used tariffs up until around the 1960s.

We’re going to take a quick look back at the two periods that jump out around this time – the 1930s, when Ireland became embroiled in an ‘economic war’ with England, and the 1950s, when Ireland shifted its protectionist policies.
 
Anglo-Irish Trade War
 
A trade dispute between Ireland and Britain was always likely in the 1930s, once an Éamon de Valera Fianna Fáil led the government from 1932. De Valera had a specific idea in mind of how he wanted Irish society to look, with an important aspect being that it would be largely self-sustaining.

The conflict is said to have been sparked by a disagreement over land annuities. These were payments set up to reimburse the British government for loans given to Irish tenant farmers to buy land from landlords in the 1880s.

The Irish government argued that Irish citizens should not be obliged to pay Britain for Irish land. The Irish government stopped the payments to Britain in 1932 (although they continued collecting the annuities, they just didn’t send the money abroad).

In response, the British government imposed tariffs on Irish agricultural exports, particularly cattle, which was hit with a 20% tax. The Irish government then imposed retaliatory tariffs on British goods.

The dispute ended in 1938, when Britain dropped the tariffs in return for a once-off payment of £10 million and the return of the ‘Treaty ports’ to Ireland.

But, what impacts did the tariffs themselves have? As Ireland did not officially calculate GDP until the 40s, it’s hard to know exactly.

But the popular view among economists and historians is that the dispute was much more damaging for Ireland than Britain.

At the time, Ireland was massively reliant on England for trade. It was estimated to account for about 90% of all Irish exports at the time. 

Agriculture, Ireland’s most important industry, was worst impacted. Cattle exports fell by over 35% between 1931 and 1934. This was because the tariffs made Irish beef more expensive in the UK, causing a fall in demand.

As the export market suffered, many Irish farmers went bankrupt. Again, official figures are hard to find, but it’s estimated that tens of thousands of Irish people became unemployed.

However, some argue that Ireland actually did relatively well overall. Economic historian Kevin O’Rourke argued that the £10 million one-off payment Ireland made to Britain to settle the dispute was a bargain, given British officials calculated they had lost at least £100 million in land annuity payments.

While he calculates the dispute cost Ireland approximately £4.5 million per year, or £31 million overall, this was worth it to get rid of the land annuity payments.

But the issue of the land payments is a very specific one, and it’s clear that tariffs did damage the Irish economy.

By contrast, the impact on Britain was much smaller. This was because when Ireland became more expensive, it could simply source agriculture products from other markets.

This shows an important aspect of tariffs – they tend to work better when you’re the bigger country using them.

This is why Trump is banking on the US tariffs being effective – because so many countries buy products from the US, and the market isn’t easily replaceable.

Especially compared to a smaller country like Ireland. If we put tariffs up, trading partners can easily look elsewhere. 

The 1950s
 
Into the 1950s, Ireland’s economy started to significantly lag behind the rest of Europe. Living standards fell and emigration was high.

In retrospect, this was largely blamed on tariffs, as the governments had followed policies of protectionism.

This means that tariffs were still imposed against a variety of foreign industries, again with the aim of reducing competition for domestic businesses.

This was viewed as particularly important to protect the agriculture sector, which still provided about a quarter of the country’s entire employment.

The exact rates charged are hard to find, but figures published in the UK parliament said that in Ireland between 1953–1956, revenue from customs duties “was approximately 19.6% of the total value of imports”.

This suggests high taxes on imports. There is an argument that this was simply typical for the time, as countries such as Germany, Italy and Spain also had similar taxes on foreign goods.

But then many of these countries liberalised trade in the 1950s and experienced booms in their economies. Between 1950 and 1960, Germany, Italy and Austria all grew by around 6% a year.

Ireland’s annual growth rate, by contrast, was just 2% during this period. 

And it’s also worth keeping in mind that, given how poor Ireland was, this level of growth was coming from an already-low base.

“By the 1950s, protectionism was clearly no longer appropriate,” argues O’Rourke.
European countries were removing trade barriers – ironically, “at the urgent behest of the United States”.

“This meant that export-oriented growth strategies could now be, and were in fact, adopted throughout Western Europe.”

Perhaps the biggest indictment of Ireland’s use of tariffs in the 1950s is what happened once we got rid of them.

Spearheaded by then-Taoiseach Seán Lemass and former Central Bank governor T.K. Whitaker, Ireland steadily removed its tariffs in the late 1950s and early 1960s.

Sean Lemass (second right) as Ireland applies for full EU membership in 1962. Alamy Stock Photo Alamy Stock Photo

The country’s economy grew at an average annual rate of “nearly 4.5%” between 1959 and 1963, doubling the growth rate of previous years.

“Unemployment was reduced and emigration fell to a level lower than the natural rate of growth in the population, so that the population increased,” according to the IMF.

Exports in 1963 were over 50% higher than in 1958, industrial exports being over 90% higher.  

Again, what does this mean in regards to tariffs? It points to how, in Ireland at least, they seem to be largely ineffective at their purpose – that is, protecting the domestic economy and local businesses.

While it could be argued that Ireland got a decent result in the Anglo-Irish trade war, this depends on your view around the land annuity dispute.

By all accounts, tariffs themselves damaged the local economy and hindered growth.
Now this is all for Ireland of course.

Like we touched on, tariffs are unlikely to ever be particularly effective for a small country which is reliant on international trade.

As far as the US is concerned, this tariff experiment will likely show if it can do what most countries can’t – grow its economy, in spite of making trade harder for many businesses.