3 hours Ago By Cliff Taylor
In Trump’s economic philosophy, trade deficits are seen as bad and are portrayed as giving away wealth to other countries. And in terms of trade in goods, the US has a big deficit with Ireland, meaning the value of goods we sell to the United States is well above what we buy from them. That gap is growing.
Trade figures from the Central Statistics Office on Friday showed that Irish exports to the US in the first nine months of the year shot up by 28 per cent to €52.5 billion. From the US point of view, the trade deficit with Ireland so far this year is more than €35 billion.
The vast bulk of Irish sales to the US — 80 per cent so far this year — are chemicals and pharmaceuticals, where Irish exports to the US surged by no less than one-third compared to the same period last year. To say the least, it was not a good time for this to happen. And the pharma sector — a big employer and taxpayer — looks exposed as the new administration examines why the US has a big trade deficit with Ireland.
Unlike most other big US companies here, it targets much of its exports back to the American market. Lighthizer served in Trump’s first administration as the US trade representative. His role in the new administration is not yet confirmed, though reports say Trump wants him to take overall charge of trade, though another senior position is possible.
In his book, he points out that the pharma companies arrange their affairs to declare the bulk of their profits here and as a result “Ireland gets a substantial part of the tax revenue that would normally be due to the US Government, and the pharmaceutical companies employ tens of thousands of Irish workers.” This, he says, is a “transfer of wealth from us to them”. Game, set and match to the tiny island.
In his book, aptly titled No Trade is Free , Lighthizer gives a stylised example of how this works. The US company first moves the intellectual property — the licenses, copyrights and trademarks underlying a product — to its Irish subsidiary. It then produces a drug which, he says, might be manufactured here at a cost of $0.
5 per pill. The Irish subsidiary then sells the pill to its US parent for $10 and the parent markets it to American consumers for $11. In this way the vast bulk of the profit is declared in Ireland and very little in the US, even allowing for a licence fee which the Irish company makes to the US parent for the use of intellectual property.
The reality of many of these arrangements is often a bit more complicated, as US economist Brad Setser has pointed out in evidence to a congressional committee . But it is a classic example of what is called “profit shifting”; in other words moving profits around the world to cut the corporate tax bill. Ironically Trump’s tax reforms in 2017 further encouraged some firms to enter these kind of arrangements.
New US legislation can change the tax incentives favouring overseas production. Lighthizer writes about previously discussed — but not enacted — proposals to change the way companies are allowed to write off the cost of overseas production against US tax. Setser points to potential changes in a rule the US uses to tax overseas earnings.
Trump’s proposed corporate tax cut could also have an impact. And then there is Trump’s preferred policy of tariffs, or special import taxes, payable on goods entering the US. The president-elect has said he will impose tariffs of up to 20 per cent on goods coming from other countries apart from China — where 60 per cent tariffs are the threat.
This would change the economics of production for the pharma firms here and also hit other Irish companies selling to the US. This is all part of a wider agenda of economic nationalism — encouraging companies to produce in the United States and closing off the US market to competition. It is the opposite of the globalisation agenda which has driven international investment and trade since the 1980s, to Ireland’s huge benefit.
We have yet to see what Trump will do. But judging by his senior appointments so far there is no sign of a pulling back on his Maga [make America great again] agenda. Quite the contrary.
And Lighthizer’s view on Ireland is shared by other key figures in Trumpland. Howard Lutnik, a Cantor Fitzgerald banker who is the head of Trump’s transition team, wrote on X in October that “it’s nonsense that Ireland of all places runs a trade surplus at our expense”. Trump himself has over the years also fingered US pharma production in Ireland as something to be addressed.
You can, of course, speculate on a variety of scenarios now. No doubt Trump and the Republican Party will be subject to intense business lobbying. His policy reforms could take on momentum or could be so chaotic that he has to pull back.
On tariffs, a Republican Congress and presidential powers give Trump options, but perhaps not a clear run to impose the kind of blanket sanctions he has threatened. This makes the impact on Ireland impossible to calculate with any precision. But what we can say is that the intentions of the new administration are clear.
If the promised heavy tariffs on goods entering the US from the EU are imposed, then this is a big hit to parts of our economic model. It also threatens a wider trade war which would cause further damage. And this comes at a time when poor infrastructure delivery is already threatening inward investment here.
It has been a bit like watching trains moving on two parallel tracks this week. In Ireland, the general election promises are racking up. In the US, Trump proposes policies which would pose a real danger to US investment and could take a chunk out of the tax revenues which would be needed to pay for all these election promises.
These two lines may not meet before the general election, but you would have to reckon that trouble will be coming the way of the next Irish government from across the Atlantic..
