US tariffs will “adversely affect” the Irish economy, prompting a slowdown in exports and lower-than-expected growth over the next two years, the Economic and Social Research Institute (ESRI) has warned.
If the US specifically targets pharmaceutical products, the impact could be “much worse”, the think tank said in its latest quarterly commentary.
With US president Donald Trump signalling he will announce tariffs on EU imports on April 2nd, the ESRI modelled the likely impact of a 25 per cent bilateral tariff on all EU-US trade.
Under this scenario, the Irish economy, as measured by modified domestic demand (MDD), would expand at a slower-than-expected rate of 2.8 per cent this year and 2.1 per cent in 2026, compared with 3 per cent and 2.8 per cent if tariffs were not applied.
While the direct impact of tariffs will be to lower export volumes, the ESRI warned there would also be second-round effects in the form of lower output and employment across several of the more exposed sectors, while tariff-driven inflation could keep interest rates – at a European Central Bank (ECB) level – higher for longer.
The ESRI noted that of the six biggest export sectors here, five are reliant on US trade for about 30 per cent of activity. These include pharmaceuticals; organic chemicals; essential oils; professional, scientific, and controlling apparatus; and miscellaneous manufacturing.
If US protectionist policies were to specifically target these sectors, “the above effects would be magnified”, the institute said.
“Given the stated position of the US administration to reshore pharma activity, any further use of non-tariff measures, industrial policy instruments or soft pressure to move activity back to the US could affect Ireland over and above these effects,” it said.
The ESRI warned that changes to US tax policy that incentivises the repatriation of intellectual-property-related profits currently held in Ireland could significantly impact Irish corporate tax revenues, which jumped to a record €28 billion last year.
“Given the central role these revenues play in the public finances, any serious correction would have significant implications for the public finances,” it said.
Another concern would be if the US decided to retaliate against European regulation of the big digital services companies such as Meta.
Outside of the tariff threat, the ESRI painted a relatively positive picture of the Irish economy, noting it entered 2025 in a “strong position” with unemployment at a multiyear low of 3.9 per cent and with real income growth forecast to “exceed” 3.5 per cent this year.
While the headline inflation rate has ticked upwards in the early months of 2025 and is now close to 2 per cent, the think tank noted that price growth was mainly concentrated in services rather than in goods, particularly in domestic nontraded services such as restaurants and hotels.
“While the Irish economy is in a robust state, it faces significant uncertainty in light of changing international trading conditions,” the ESRI’s Kieran McQuinn said.
On housing, it noted that supply in 2024 was “somewhat disappointing” with completions coming in at 30,330 units, down 7.8 per cent on the previous year, “heightening fears that housing costs will continue to escalate in the domestic economy”.
It forecast that new-home completions would increase to more than 34,000 this year and to more than 37,000 in 2026, while still lagging structural demand, which is now estimated at more than 50,000.
