What do Trump’s Tariffs Mean for Ireland?

Introduction

Wednesday’s (April 2nd) ‘Liberation Day’ announcement by President Donald Trump, in which he imposed sweeping tariffs on all US imports, has sent shockwaves through global trade networks, with Ireland poised to feel the impact disproportionately. As a small, open economy heavily reliant on multinational corporations and exports, Ireland faces unique vulnerabilities that extend far beyond the immediate effects of these tariffs. The country’s economic model, built on foreign direct investment and a favorable corporate tax regime, is now under unprecedented scrutiny. So what exactly do Trump’s tariffs mean for Ireland?

Ireland’s exposure

One of the most striking aspects of Ireland’s economic landscape is its reliance on what are known as “phantom exports” –– goods produced abroad under contract by Irish-registered firms but booked as Irish exports despite never physically entering the country. These exports, officially termed “contract manufacturing” or “goods for processing,” represent a significant but often overlooked component of Ireland’s export figures. In 2023, phantom exports accounted for a staggering €92 billion, representing more than a quarter of Ireland’s total merchandise exports of €329 billion [1]. This marks a dramatic increase from just €6 billion in 2012, highlighting the rapid growth of this phenomenon and its central role in Ireland’s economic success.

The nature of these phantom exports creates unique vulnerabilities in the face of Trump’s tariffs. Unlike traditional exports, where tariffs are applied based on the country of origin, phantom exports are subject to tariffs based on where the goods are actually produced. This means that goods manufactured in China but booked as Irish exports would be subject to Trump’s existing tariffs on Chinese goods, rather than the new tariffs being imposed on EU products. The implications of this distinction are profound, particularly for the many US multinationals that use Ireland as a base for their European operations. Companies like Apple, which contracts manufacturing in China for its iPhones but books the exports through Ireland, could face significant additional costs that would directly impact their profitability and, by extension, Ireland’s corporate tax revenues.

John O’Loughlin, a partner in global trade and customs with PwC Ireland, emphasises the far-reaching consequences of this arrangement. “Anywhere where you have a movement of goods crossing an international border now is impacted,” he notes. “Those indirect aspects, like contract manufacturing, are not getting enough attention. Everybody’s focusing on the direct impact of what’s right in front of them but I think it’s further up and down the supply chain is where there is a massive risk that’s probably not been looked at that closely enough” [2]. This observation underscores the complex web of interdependencies that characterise modern global trade, and Ireland’s particularly exposed position within that web.

The potential impact on Ireland’s corporate tax base cannot be overstated. In 2023, corporate tax revenues reached €30 billion, with approximately half of that amount already considered at risk due to various international tax reforms [3]. The introduction of tariffs on phantom exports could further erode this vital revenue stream, either through direct reductions in multinational profits or through the more drastic scenario of companies relocating their intellectual property holdings out of Ireland altogether. While Feargal O’Rourke, chair of the IDA, has suggested that the 12.5% exit tax would serve as a deterrent to such moves [4], the rhetoric from US officials like Commerce Secretary Howard Lutnick indicates that Ireland’s tax arrangements are very much in Washington’s crosshairs. “They all put it there because it’s low tax and they don’t pay us. They pay them. So that’s got to end,” Lutnick stated recently, leaving little doubt about the administration’s intentions. [5]

Pharma, agri-food, and the north-south divide

The pharmaceutical sector, which accounts for the lion’s share of Ireland’s exports to the United States, has so far been granted a temporary reprieve from the new tariffs. This exemption provides some breathing room for an industry that exported over €110 billion worth of products in 2023, making Ireland the third-largest exporter of pharmaceuticals globally [6]. The concentration of this industry in locations like Cork, where 23 pharmaceutical firms operate including seven of the world’s top fifteen, means that any future tariff imposition would have severe regional as well as national consequences [7]. However, the respite may be short-lived, as Trump has made clear his intention to address what he sees as unfair practices in the pharmaceutical trade. The sector’s exclusion from the initial round of tariffs likely reflects concerns about potential drug shortages and price spikes in the US market rather than any long-term exemption.

In contrast to pharmaceuticals, Ireland’s agri-food and drinks sector faces immediate and significant challenges from the new tariffs. With annual exports to the US valued at approximately €2 billion, this sector must now contend with a 20% tariff that puts it at a distinct disadvantage compared to competitors from the UK and New Zealand, which face only a 10% tariff [8]. The Irish Whiskey Association has been particularly vocal about the potential consequences, noting that the US represents 41% of Irish drink exports, worth €865 million annually [9]. The Association’s statement captures the sector’s concerns: “Our high-quality jobs cannot be reshored or repatriated to the US. Our sectors are truly interconnected. There are many examples of EU and US distillers working together in developing portfolios, operating facilities, creating additional jobs and new investments in both jurisdictions” [10]. The 10% differential between Irish and UK whiskey exports to the US market could have lasting effects on market share and profitability for Irish producers.

The divergence in tariff treatment between the Republic of Ireland and Northern Ireland introduces another layer of complexity to an already challenging situation. While the Republic faces the full 20% EU tariff, Northern Ireland benefits from the 10% rate applied to UK goods [11]. This discrepancy has raised concerns about potential distortions in cross-border trade and the possible undermining of the carefully negotiated Windsor Framework. Tánaiste Simon Harris has identified this as a “real challenge,” particularly for sectors like dairy where supply chains frequently cross the border. The practical difficulties are significant, as Harris explains: “If you look at things like dairy, there’s huge complexities. Stuff that goes out from the North could be listed as coming from the South” [12]. Former Taoiseach Bertie Ahern has warned that this differential treatment could reopen trade issues that were thought to have been resolved by the Windsor Agreement, creating new tensions and uncertainties for businesses operating on both sides of the border. [13]

EU response

The European Union’s response to Trump’s tariffs will play a crucial role in determining the ultimate impact on Ireland. European Commission President Ursula von der Leyen has indicated that the EU is preparing countermeasures, but significant divisions exist among member states about the appropriate course of action. Some advocate for immediate retaliation, while others, including France, caution against escalating tensions with the United States [14]. Ireland finds itself in a particularly delicate position, torn between its traditional alignment with EU trade policy and its unique economic relationship with the US, where American companies account for the majority of foreign direct investment and a significant portion of employment.

The potential consequences of a full-blown trade war are severe. A study by Aston University cited in the Irish Independent suggests that in such a scenario, Ireland could experience a 6.6% drop in exports, a 13% fall in imports, and a GDP decline of up to 3% [15]. These figures reflect Ireland’s particular vulnerability as a small, open economy with a relatively undiversified trade base. Professor Jun Du, one of the study’s authors, notes that Ireland’s exposure is disproportionate compared to larger EU economies, leaving it more susceptible to the ripple effects of escalating trade tensions between major global powers.

The Irish government faces difficult choices in navigating this crisis. While immediate measures may focus on supporting the most affected sectors, there is growing recognition that longer-term structural changes to Ireland’s economic model may be necessary. As Ian Guider of the Business Post observes, “Ireland’s weakness is self-inflicted. This country once positioned itself as the gateway to sell technology, pharmaceuticals and medical devices into Europe and beyond. That natural position, aided by a stable economy and political system and a pool of skilled workers, suddenly changed. It became a tax-driven boom, booking revenues and profits for products that are not even manufactured here” [16]. This assessment suggests that the current crisis may accelerate existing trends toward economic diversification and a reduced reliance on the multinational sector.

What do Trump’s tariffs mean for Ireland?

The implementation of Trump’s tariffs marks the beginning of a new and uncertain chapter in global trade relations, with Ireland positioned squarely in the crosshairs. The country’s unique economic model, which has delivered remarkable success in recent decades, now faces its most serious challenge yet. The immediate effects will be felt most acutely in sectors like agri-food and drinks, while the longer-term implications for Ireland’s corporate tax base and its attractiveness to multinational investment remain uncertain.

What is clear is that Ireland cannot rely on past strategies to navigate this crisis. As Daniel Murray of the Business Post concludes, “If disaster is averted, this moment presents an opportunity, a chance to re-engineer our economy with long-term resilience in mind. That means moving beyond our over-reliance on multinational tax advantages and instead fostering a more self-sufficient industrial and technological base” [17]. The coming months will test the resilience of Ireland’s economy and the ingenuity of its policymakers as they seek to mitigate the impact of these tariffs while positioning the country for sustainable growth in an increasingly volatile global trade environment.