Trump’s return to the White House is going to present Ireland with difficult political choices as economic rows blow up between the US and the EU. Ireland’s key economic strategy for many years has been to be a bridge between the two, offering a profitable home to US investment in Europe. Now Trump may force Ireland to take sides and if this happens, Ireland will ultimately have to side with Europe, despite the large US investment here. Berlin wins over Boston. The visit of the next taoiseach to the White House with the bowl of Shamrock could be an interesting one.
There probably isn’t a lot of point in trying to work out what Trump will actually do, as opposed to what he said he would do. Nor is there much Ireland can do to influence this. The strategic issue for Ireland is that Trump’s threats to bring investment back home to the United States underlines our exposure to US multinationals and the taxes they pay. This is central to our economic model.
A Danish employers’ study based on a model from Oxford Economics business group stated Ireland would be one of the EU member states hardest hit by a full imposition of Trump tariffs, with the potential loss of 30,000 jobs and GDP in 2027 at 4 per cent below what it would otherwise be. This would mean a big hit to the economy and the public finances and tough decisions for the new Government. Let us hope Ireland dodges this bullet. But the strategic issue is that the State’s huge exposure to anything going wrong with US investment here is now not just a theoretical calculation in the Department of Finance, but a real risk.
For a decade everything has been in our favour. The first phase of the OECD corporate tax reform programme in 2015, designed to crack down on global tax avoidance arrangements – an area where the Republic had already been criticised – actually directed significant additional investment here. Trump’s first tax reform programme in 2017, ostensibly designed to keep investment at home, did the exact opposite. Ireland cashed in on the double. Corporate tax revenues soared.
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In recent months the corporate tax surge has continued – added to by the Apple bonanza – but there had already been some slowdown in inward investment and worrying signals of multinational frustration about Ireland’s speed in delivering new infrastructure in areas such as housing, water and energy.
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So what happens now? In terms of his trade agenda, the first key marker of his economic policy, Trump has to balance meeting his campaign promises with the risks of pushing up US inflation. This means he may not go all-in on tariffs – though he may need the revenue they will raise to help fund his tax-cuts programme elsewhere. Either way, the direction of travel is clear – and has been from Trump’s first term and through the Biden presidency. The era of unbridled free trade and investment is over, undermined first by the uneven spread of gains and the feeling by many that they were left behind, and then by geopolitical events, notably the war in Ukraine.
The US and countries in the EU are now fighting to win big investments in areas seen as vital for economic or political advantage – think semiconductors and AI, for example. Trump’s threatened tariffs may or may not follow his campaign promises, but they are now part of the accepted playbook, whoever is in the White House.
And Europe is in Trump’s sights. He has already promised to target “all the nice European little countries” that, he claims, take advantage of the US in the trade arena. Whether he goes ahead with a full-scale imposition of tariffs on all EU imports or not, serious tensions look inevitable. There is no shortage of possible flashpoints – starting from EU regulatory fines on big US firms, moving to the way US multinationals are taxed in Europe and finishing with risks of a full-scale trade war as the EU responds to Trump with tariffs of its own.
Ireland will be the small EU country caught in the middle. Back in 2000, Mary Harney, the then tánaiste, declared that Ireland felt more affinity with Boston than Berlin. And in the intervening period Ireland has managed to walk the line, holding off successive EU demands for corporate tax reform and always doing enough – and in some cases, too much – to remain attractive to US investors. In recent years waves of tech and pharma investment have boosted the economy and the exchequer; now these firms are working on scenario planning. What happens, for example, to the large exports by US multinational subsidiaries of pharma products from Ireland back to the American market if Trump imposes tariffs here, with the stated goal of getting these firms to invest at home?
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As Trump targets the EU, Ireland is likely to find itself in some uncomfortable positions. If, for example, Trump imposes tariffs on European carmakers, Ireland has no skin in the game, but will be part of any EU response as Brussels looks after trade policy for the bloc. And the response would – sooner or later – be tariffs on US imports to Europe. Ireland’s short-term interest would be to avoid such escalation – as we are heavily exposed to a full-scale trade war – but the realpolitik would see the State rowing in with the EU, assuming it could agree a coherent response.
Ireland has some essential short-term budgetary leeway, with the public finances in surplus and the outgoing Government putting money aside in two new funds. It is vital that the State finances are carefully managed in the months ahead, as we wait to see how Trump’s first months in office unfold, but the likelihood is that the general election campaign will still involve promises to spend money that Ireland may not actually have.
But the long-term questions, hiding in plain sight over recent years, now also need to be considered. How does Ireland position itself in this new world of economic nationalism? What will be Ireland’s unique offer to investors in future? And how can we build our own competitiveness and productivity and invest much more quickly and efficiently? Ireland cannot control Trump’s rows with Europe; it needs to focus on looking after its own house.