Well you didn’t expect it to be straightforward, did you? Irish companies have spent the past few days scrambling to try to understand the impact of Donald Trump’s tariffs on their exports to the US and work out what might happen next. Despite the headline deal between the EU and the US, much remains to be settled.
In the middle of all this, one thing is clear. Vital negotiations are under way in Washington between big American multinationals and the US president and these are going to have a big impact on Ireland. The State’s exposure to a small number of big US firms in terms of corporation tax and employment is well known – so how the big pharma companies and tech giants respond to Trump’s cajoling and bullying will be vital. As these deals are being done in Washington, Ireland can only look on.
The boss of Apple, one of the Republic’s biggest employers and taxpayers, called to the White House this week to pay homage to the chief and promise $100 billion (a nice round number) in new investment in the US - to add to the $500 billion it has already pledged. Analysts, scrambling to work out how this will change the company’s structures, believe its chief executive Tim Cook may still be able to retain the supply chains that have guaranteed nice profit margins.
How this – or the impact of pressure from Trump on Intel’s new chief executive – might affect their Irish operations is far from clear. The best hope is not very much – that the chief executives will pander to Trump a bit, protect as much of their operations as they can and then wait him out. But the point is that Ireland is uniquely vulnerable to decisions made around a dozen US boardrooms and on the interactions of these firms with a volatile and unpredictable president.
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Nowhere is this clearer than in the vital pharma sector. The headlines are about Trump’s threats of 150 per cent tariffs in a year or two’s time, or maybe 250 per cent, or whatever you are having yourself. The real action is behind the scenes. Here, the big pharma companies are trying to reach an agreement with Trump on pricing in the US market. This is running parallel with his drive to attract the manufacture of key drugs and ingredients back to the US.
[ Tariffs: what do Trump’s latest pharma threats mean for Ireland?Opens in new window ]
As ever with Trump, there are contradictions in the goals he is trying to achieve, so we will have to see where this lands. Trump’s tariff threats on pharma run counter to his desire for lower prices. Interestingly, for now EU pharma exports to the US do not look to be facing immediate tariffs.
Clarification from US Customs indicates that pharma is on a list to remain zero rated for now, according to Carol Lynch, a customs partner with BDO. However, the sector may well face some charge when Trump announces the results of a separate investigation into the sector shortly. This could be of 15 per cent, though this is not clear.
The backdrop to this are the active discussions between the White House and big pharma companies on the pricing issue as part of Trump’s agenda to drive down US drug prices – which are notoriously high – to the lowest levels available elsewhere. This could involve the pharma companies charging more in other countries, including in the EU, as a rebalancing exercise. They are also looking for concessions from Europe on the way they are reimbursed for new drugs coming on to the market.
[ Irish exporters ‘told to shut their mouths’ over Trump tariffsOpens in new window ]
Unlike the half-baked madness of much of his policy, Trump has a point here. Drug companies have arranged their affairs not only to drag huge profits out of the US market, but also to pay tax on this in countries like Ireland, where the charge is lower. Work by economist Brad Setser of the Council on Foreign Relations in the US shows how the big six US pharma companies combined set aside no funds to pay tax to the US exchequer in 2023. Zero. This is despite the vast bulk of their revenues coming from the US market, where prices are on average almost three times higher than the OECD average, according to a 2022 study undertaken on behalf of the US government, with the biggest gap being for the kind of high-value branded drugs and their ingredients made in Ireland.
Ironically, the 2017 tax reforms introduced when Trump was first in office increased the tax incentive for pharma firms to invest abroad and keep some key intellectual property assets in countries like Ireland. Trump’s “big, beautiful bill” – his new tax plan – will do nothing to address this.
These trends have been hugely to Ireland’s advantage in recent years, but now create a vulnerability, as things that get way out of line generally do. There is a risk of less investment here by pharma over the next few years. And also of changed pricing practices which lead to less profit being declared in Ireland and thus less corporate tax paid here.
Ireland might settle for some loss here, if Trump held off threats of massive and disruptive tariffs in the years ahead. While the EU feels it has a deal to keep all tariffs to a maximum of 15 per cent, Trump’s recent comments suggest he thinks otherwise. But, like in microchips, he might spare those who fall in with his demands to invest in the US – or in the case of pharma cut prices.
Trump’s direct dealings with big players vital to our economic future adds to the uncertainty about the economic outlook. Tariffs are not the only economic weapon at his disposal. He is also relying on arm-twisting and the “power” which the US government has via the goods it purchases and its ability to set the ground rules through regulation. That said, big pharma and big tech are powerful players and have cards to play too
Ireland won’t get to choose how all the deals are worked out. The future shape of the trading world is being carved up in the White House between a capricious president and amoral multinationals who care nothing for his agenda, but will play along in their own interest.
Ireland’s hope will be that it can continue to position itself as an ongoing trusted supplier and investment home to the US – that we are accepted as part of the supply chain which ends up in the US. The Government will try to diversify trade, too. But we have an awful lot of eggs in Uncle Sam’s basket and a lot at stake as Donald Trump tries to get the big multinationals to do his bidding.
