In its rush to curb China, the EU could learn lessons from Ireland’s protectionist past

After the nightmare of the second World War, the recovering economies of Europe built a free trade world. The European Economic Community (EEC), founded in 1958, embodied the commitment to more openness. Ireland, however, slept, with a highly protected and expensive, inefficient domestic manufacturing sector.

In the 1930s, along with most other countries, we introduced protectionist measures to develop domestic industry. These remained in place into the 1960s when Seán Lemass gradually dismantled the trade barriers in anticipation of EEC entry, which we joined in 1973.

The maintenance of protection after the war had not resulted in successful Irish businesses. The process of moving to free trade proved painful. Much of the existing industry could not compete and shut down in the late 1960s and 1970s. It took time for new firms, many foreign-owned, to establish themselves and to reap the benefits of EU market access. This move to free trade eventually proved hugely beneficial for Ireland; it was just a pity it had not happened 20 years earlier.

This experience has lessons for the EU today. The rise of China as a significant world manufacturing centre benefiting from government subsidies, along with hostile and erratic US policy to its trading partners, has sharply altered the world trade order.

These factors have evoked a misguided EU response, of trying to protect domestic manufacturing through raising barriers to trade and “buy EU” regulations. In the long term, freer trade is the best answer, and can raise living standards for all partners. Even in time, the US may come to realise it.

The EU’s policy response of protecting EU firms needs an exit strategy: a reformed business sector must be able to compete again on the world stage. There is a serious danger that the EU could lock itself into an increasingly inefficient and costly world of its own.

The changed external environment came at a time when EU factories were already under pressure. In 2008-2024 EU manufacturing employment fell by 1.5 million. However, 4.5 million people without a degree lost their jobs, while graduate employment went up by 3 million.

The significant loss of jobs among less qualified workers is having significant political consequences and fuelling the successes of Germany’s AfD and Marine Le Pen’s prospect of becoming French president.

France has been particularly badly hit. Some 800,000 lower-skilled manufacturing jobs have gone, and the rise of 200,000 graduate jobs has not compensated. In Germany the increase of 800,000 graduate jobs has almost counterbalanced the loss of 900,000 jobs among those without a degree.

Faced with a world hostile to free trade, a different approach is needed to produce a vibrant and successful EU manufacturing sector. Policy interventions should aim to help EU manufacturing to transition to a world where it can stand on its own feet.

Temporary protection should only be accorded to sectors that have a realistic chance of being able to sell in a global market within a reasonable time scale. Protecting an EU car industry that in future can only sell on a protected EU market would be a strategic mistake.

China leads in battery production and solar panels, not just because of government support, or its ready access to rare earths. It’s because the Chinese have engaged in successful research in materials science, resulting in big changes in battery and solar panel efficiency. If China were selling shoddy products at low prices, that wouldn’t be a problem for potential competitors.

The EU should not give up its ambition to have a strong manufacturing sector offering good jobs. However, it will need to invest in research and innovation to transform EU manufacturing into a world-class supplier.

The drastic cuts by the US government to funding for pharmaceutical research have opened the opportunity for the EU to move into that gap. That could prove a real winner. Such research is key to global pharmaceutical innovation. At the same time, China is coming up on the outside and is investing in this area of research. To make the breakthrough for Europe and be successful, research and innovation in pharmaceuticals must take place on an EU scale. Fragmented research efforts country by country won’t bring the critical mass needed.

Given the changing profile of today’s and tomorrow’s manufacturing businesses, the EU also needs to invest in upskilling its workforce. New businesses and new sectors will need different skills from the past. The capacity to adapt and possession of readily transferable skills can give European workers a new edge.