There was one clear message from Donald Trump in relation to the Irish economy. He wants the US pharma companies here to bring back their investments to the US. It is worth trying to unpick this because these companies are big providers of jobs and tax in Ireland.
1. What did Trump mean?
Pretty much all the big US pharma companies have big investments in Ireland. But why does the US president focus in particular on this sector? What seems to irk him is that the big companies' bases here sell not only to EU and international markets from Ireland – but also sell significant amounts back to the US. This poses a few problems for Trump. One is the security issue – he wants key products like drugs and semiconductors made in the US to reduce risks to supply in an increasingly unpredictable world. The second is that the big pharma companies have arranged their affairs so that they pay very little corporation tax in the US. Trump sees America getting a bad deal here with the pharma companies creating jobs and paying tax overseas in lower tax countries like Ireland and the US getting expensive drugs.
2. How big is Ireland’s pharma sector?
The pharma sector is a key employer and taxpayer, built largely on the subsidiaries of US multinationals. According to a Future Skills report last year, there are more than 85 multinational and indigenous companies active within the sector in Ireland which directly employ around 50,000 people- a 61 per cent rise since 2016. Nine of the ten biggest pharma companies have operations here, including US giants as as Pfizer, Johnson & Johnson, Eli Lilly, AbbVie and Merck.
The latest figures show that the pharma and chemicals sector paid close to €4 billion in corporation tax in 2023 in Ireland, second only to the ICT sector which paid €4.24 billion. With big profits earned during Covid, the pharma and chemicals sector, had paid €5.5 billion in corporate tax the previous year. It employs more than 40,000 people here. The industry has developed over the years in Ireland, starting producing ingredients in bulk for export to other countries and subsequently getting increasingly involved in higher value products, finished drugs and research.
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The scale of exports from the sector is striking, with the wider chemicals and pharmaceuticals alone accounting for €143 billion of the €223 billion in Irish goods exports last year. Pharma alone accounted for some €100 billion. The US is a major market for Irish pharma and chemical companies, taking €58 billion of exports last year, up from €40 billion in 2023.
3. Is Trump right that the US gets a bad deal from the way pharma operates?
The short answer is yes. Drug prices are high in the US, as demonstrated by international research, with one analysis showing that they are more than two and a half times the OECD average. Meanwhile, the low level of corporate tax payments by the big pharma companies in the US is striking – research for the US think tank, the Council on Foreign Relations showed that the combined tax liability of the top seven US pharma companies in 2023 summed to zero (in fact that had some tax losses to carry forward). Nor was this particularly out of line, with small total payments in most recent years. The flip side of this is that these companies arrange their affairs to pay significant tax abroad – their global effective tax rates are generally in the region of 10 per cent to 15 per cent. The final part of the puzzle is that they return large wads of cash to the US, from which their shareholders are the main beneficiary.
4. Why does this happen?
Access to the EU market is a key reason for multinational investment and pharma is no exception. Ireland also has a long-established record in the sector and a skilled workforce. The expansion of the companies here into exporting back to the US market was based on the presence of existing operations here and also on costs factors. but also clear tax advantages compared to producing at home. These incentives were increased, according to Council of Foreign Relations researcher Brad Setser, by Trump’s first tax reform package in 2018 and particularly measures introduced to deal with the overseas earnings of US companies (the so-called GILTI regime which covers international earnings from intellectual property (IP) such as copyrights, licenses, patents, and trademarks). Under this regime, the big pharma companies can arrange their IP, much of which has been technically transferred to Ireland, so that they declare significant profits in overseas countries like Ireland and very little in the US. Trump blamed former presidents for this offshoring of production, though in Setser’s view his own tax changes are a key part of the story.
5. What is Ireland’s case here?
As Trump himself conceded – albeit grudgingly – Ireland has done a good job in attracting pharma companies. The low corporate tax rate – now 15 per cent for these big companies – is part of the reason, along with a skilled workforce. Over the years the Irish tax system has also been tweaked to assists the tax planning of these companies – for example via the controversial double Irish tax scheme, now abolished, and the allowances firms could claim on IP moved here, which effectively allowed them to shelter significant portions of international income from tax. Ireland argues that it has now signed up to the OECD tax plan and has also resisted the “tax haven” label. In the White House, the Taoiseach also pointed out that big US multinationals have done very well in Ireland and their shareholders – many of them American – have gained.
6. What might Trump do?
We know the president loves tariffs. He said that had he been president when the US pharma companies first invested here to serve the US market he would have slapped 200 per cent tariffs on their products. This would effectively have killed the idea of serving the US market from Ireland. And now he is threatening tariffs again, both general tariffs on all imports to the US and specific charges on key products like drugs and semiconductors to encourage these firms to move production for the American market back to the US. How these tariffs will all add up we may find out in April, according to what he has said. And the really key question is whether they will be a temporary imposition to try to get quick concessions, or something which will stay in place semi-permanently. There are other levers the president could choose to pull either – for example tax changes to the Gilti regime or putting a squeeze on US firms via the huge purchases the federal government makes. These firms also export around the world from Ireland – but there is no doubt that there is now a threat to the part of their business which sells back to the US. And that as well as physical relocation Trump may push them to declare more of their profits in the US and thus may more tax there.
7. How might the companies react?
A number have already pandered to the president by announcing more investment in the US – notably Eli Lilly which is to spend $27 billion on four new US plants. An issue here is the length of time these projects take to bring into operation – in most cases production cannot just be switched back to the US in a few months.
“For pharma manufacturers, building new greenfield capacity is a five to seven-year project”, according to Gerard Brady, chief economist at Ibec, the employers’ organisation. “Even moving capacity for an existing product line can be a multiyear commitment between regulatory approvals, hiring, batch testing and supply chains. Where there could potentially be some movement would be where the same line as is made in Ireland are made in a country not subject to tariffs and they have enough spare capacity.”
In relation to spare capacity, Pfizer chief executive Albert Bourla has already indicated that if there are tariffs it will seek to move some production back from overseas to some of its 13 US plants. Again, this could lead to some fall-off in production in countries such as Ireland.
Much will depend on the judgment by companies about how long tariffs might be imposed for – and at what scale.
“Tariffs are a major disruptor,” according to Brady “ but companies will only react to them by making irreversible investment or structuring decisions if there is a credible threat that they are going to be in place for the long-term, not months.”
Nor are changing the tax structures which these companies have set up a straightforward exercise. Intellectual property, for example, could be brought back to the US, but there could be a hefty tax charge due to Ireland in some cases. But there is a possibility that over time the companies might rearrange their structure so that they report more profit in the US and less in Ireland, meaning less tax paid here. In many cases doing this would be quicker than relocating actual physical production.
In the short term, in pharma and elsewhere, uncertainty will put a stop to investment plans. Companies with time horizons of a decade or more will sit and wait to see how things plan out. Short-term turbulence and some cost for Ireland seems unavoidable, however, as Trump pushes ahead with his tariff plans. New investments will be put on hold for now and there will be a move by pharma companies back to favouring the US for projects for a time, at the expense of countries like Ireland. But the real question is what the term presidency means for international trade and investment in the longer term. Ireland will still hope to be the route into Europe for many big US companies. But the business of supply the US market from Ireland is clearly in Trump’s sights and the response of the companies involved is likely to cause some pain for Ireland.
