The mood about foreign direct investment has changed subtly, though markedly, in recent weeks. Initial soundings from the IDA, senior advisers and industry bodies after the election of Donald Trump remained upbeat. In recent weeks this has been replaced by some caution.
No one expects a wholesale pull-out of US companies, but there are signs that planned investments are being put on hold while companies wait to see exactly what the new president will do.
In particular, talk of a special new tax structure which would effectively penalise companies for producing goods – and perhaps services – for the US market abroad, and reward them for exporting from the US, are a potential threat for Ireland. While the shape of this new "border tax" remains unclear, it could penalise companies manufacturing in Ireland for the US market, principally in the pharma sector. It could also encourage big US players to invest at home to serve European markets.
Restructuring
There is no suggestion that the closure of HP Inc’s Irish manufacturing plant, with the loss of 500 jobs, is related to the arrival of the new president. After all, the global restructuring of the group was announced before election night. But it does illustrate the continued pressure on the Irish subsidiaries of big multinational companies to remain at the cutting edge of group operations.
The concern for the future is that Trump’s policies could lead multinationals to favour domestic operations over international ones in future restructuring. Ireland has generally survived reasonably well against the backdrop of global cutbacks, typically hosting European headquarters. Trump’s “America first” policy could change the game – at least to an extent. So as well as finding it more difficult to attract new investment, we may have to fight harder to hold on to what we have.
There is, of course, a large amount of speculation here. Trump will cut the corporation tax rate for US companies; that much looks certain. But the rest of his corporate tax agenda remains shrouded in uncertainty. For the moment, the corporate world will be in a holding pattern as it waits to see what will happen. But, as events at HP show, the business of holding on to foreign direct investment remains as vital as winning it in the first place.
