Global trade is fragmenting. Protectionism is on the rise. Financial markets seem to be headed for an AI-related correction.
But the globalisation dynamic that has turned Ireland into one of the biggest per capita exporters in the world is not about to be reversed by Trump’s America First agenda.
That’s not to dismiss the threat from tariffs, but to put it in perspective.
[ Cantillon: Ireland forecast to be fastest growing economy in 2025Opens in new window ]
The amount of Irish exports in the line of fire is minimal, equating to roughly 2 per cent of the State’s total export trade.
Some €58 billion of €73 billion worth of Irish goods shipped to the US last year were pharma related which, for now, remain outside the tariff dragnet.
And while Trump has threatened to throw the kitchen sink at the industry – last month he raised hitting pharma companies with a 100 per cent tariff unless they manufacture in the US – this is mere posturing, Trump’s stock in trade.
Markets haven’t reacted. And since issuing the threat, Washington has struck deals with industry bellwethers Pfizer and AstraZeneca.
Both companies, which have large operations here, have agreed to lower prescription drug prices in the US in return for a reprieve on tariffs.
“We now have the certainty and stability we need on two critical fronts, tariffs and pricing, that have suppressed the industry’s valuations to historic lows,” Pfizer chief executive Albert Bourla said.
Not the sort of sentiment you would expect from company facing a fatal blow to its transatlantic trade.
[ Ireland ‘uniquely vulnerable’ to Trump pharma tariff threatOpens in new window ]
Imposing punitive tariffs on pharma is also high risk for Trump as the biggest buyer is domestic healthcare and higher prices will almost instantaneously pass-through into higher prices for consumers at a time when inflation in the US is edging up.
That leaves the €15 billion of Irish goods exports that are not pharma and that will potentially be hit by tariffs (albeit a portion of this is semiconductors which are, for now, also outside the scope of tariffs).
The €15 billion represents just 2 per cent of the State’s total €809 billion export trade in goods and services.
[ Irish exports to US drop by 60% in June as effects of Trump’s tariffs take holdOpens in new window ]
No doubt bad for the sectors and companies involved, but not something that is going to make a serious dent in the economy.
The Central Bank modelled the potential hit from a 15 per cent tariff applied to the State’s entire €73 billion export trade with the US, concluding it would result in a 1 per cent drag on national income over the longer term.
When you consider the economy is expected to grow by almost 11 per cent this year – in conventional GDP (gross domestic product) terms – according to the Department of Finance, 1 per cent is statistically negligible.
Ireland is in the enviable position of having an export sector comprising mainly acyclical, defensive sectors – medicines and tech services – which are less sensitive to downturns as the pandemic illustrated.
The bulk of Germany’s exports to the US – heavy machinery and cars – are subject to tariffs and are more likely to suffer if discretionary spending gets hit in the event of a tariff-induced downturn.
The EU’s willingness to give in to Washington in trade negotiations – in contrast with China’s hardball stance – reflects Germany’s trade vulnerability.
“The world is uncertain. Donald Trump says many things. Ireland is in the relatively envious position of having no tariffs on the majority of its exports (to the US),” Bank of Ireland chief economist Conall Mac Coille says.
“And if anything the imposition of tariffs on pharma looks less likely in the wake of the US administration’s deal with Pfizer,” he says.
Markets have got used to Trump’s taco (Trump always chickens out) dynamic which was on display again last week when he threatened to bring hellfire down on China over its new export controls on rare earths, causing a mini market wobble, before making more conciliatory overtures.
A similar pattern has played out with other trade partners, causing markets to all but dismiss Trump’s maximalist threats.
Crucially, the Central Bank’s analysis predicts tariffs won’t “dramatically” damage inward investment.
“In the absence of more significant policy shifts, multinational activity in Ireland is unlikely to change dramatically in the coming years given the substantial sunk costs of investment, though corporate tax receipts from MNEs [multinational enterprises] could change much more rapidly,” it said.
By “significant policy shifts”, the regulator means changes to US tax system that might frustrate the offshoring of multinational business.
Trump’s big beautiful tax bill was decidedly light on such measures.
A big bang in global trading patterns would, in theory, be amplified in a small, export-led economy that is heavily reliant on US investment hence the wall-to-wall media coverage of Trump’s trade threats.
But for now it looks as if we will motor through another economic crisis – there have been several in recent years (the clampdown on multinational tax avoidance, Brexit, Covid, inflation, war) – in a better state than many of our peers.
