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Taxes & tariffs: how might Trump policies hit Irish economy?

Donald Trump looks set to be the next president of the United States. Photo: Getty Images
Donald Trump looks set to be the next president of the United States. Photo: Getty Images

Analysis: The US economy will impact the Irish economy so what are the key policies from the new administration to watch out for?

As a small open economy, we are heavily impacted by what happens in the US, the largest economy in the world. Ireland's vulnerability to global macroeconomic shocks is compounded by our reliance on US foreign direct investment (FDI) and the US export market.

Last year, more than one in every €4 of Government revenue came from corporation tax receipts, and most of this money was paid by US foreign multinationals. Ireland exported goods worth more than €54 billion to the U.S. in 2023, almost 2.5 times the value of our exports to the UK, making us the third largest exporter to the US in the EU27.

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From RTÉ Radio 1's The Business, what's in store for Ireland's economy after the US election?

One thing is certain: how the US economy is managed in the next five years will impact the Irish economy.For instance. Donald Trump intends to cut CT rates for companies manufacturing goods in the US from the current rate of 21% to 15%. For Ireland, the key consideration here is the effects of these potential tax changes on foreign direct investment (FDI) and corporation tax receipts.

Since January of this year, our CT rate for companies with annual turnovers over €750 million increased to 15%, a new global minimum agreed under pillar two of the OECD international tax reforms. Research from the ESRI estimated that while the impact of this higher rate on new FDI into Ireland will be negative, it will not be sizable. Their modelling suggests that the volume of new FDI over the next ten years could be 14.6% lower as a result.

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From RTÉ Radio 1's Today with Claire Byrne, interview with IDA boss Michael Lohan on the challenges involved in attracting foreign direct investment to Ireland

Importantly, although Trump's proposed lower CT rate could incentivise more new investment to remain in the US, there would be no tax differential between the US and Ireland. This means there would be little incentive for US firms currently based here to shift profits back to the US. Additionally, Ireland would remain attractive as the only English speaking country with access to the European single market, together with our younger and better educated workforce relative to our European counterparts.

Tariffs are a major policy of relevance to Ireland. Trump has repeatedly indicated that he would implement blanket tariffs on all imports. He has stated different figures during the campaign, but a universal tariff on all goods somewhere in the range of 10% to 20% and higher tariffs of 60% on Chinese imports and 100% on vehicles have been floated.

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From RTÉ Radio 1's The Business, will new corporation tax rules hinder Ireland's competitiveness?

The biggest negative impacts of these tariffs would be on the US and Chinese economies, with the EU experiencing a more moderate reduction in GDP. However there would be differential effects, and Ireland could be disproportionately adversely affected, particularly if the EU retaliates and sparks a trade war.

A final consideration of importance for Ireland is how Trump's administration would manage the US economy as a recession in the US would have a detrimental impact on our economy. Non-partisan analysis of the economic policies of the two presidential candidates estimated, that in a worst case scenario, Trump's economic policies could add $15 trillion to US debt.

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From RTÉ Radio 1's Today with Claire Byrne, what will be the impact of the US election outcome on the Irish economy?

Similarly, economists have expressed concern about the inflationary impact of Trump’s policies and resulting damage to the US economy. While Trump has suggested that foreign countries pay for tariffs, in reality tariffs increase prices for American consumers.

The incoming US president has also promised the largest mass deportation programme in US history if he is re-elected. This would result in large losses to the economy and create worker shortages in certain sectors, driving up prices and further fuelling inflation. The estimated combined impact of these policies are inflation rates of between 6 and 9.3% by 2026. The majority of economists agree that Trump’s policies would lead to far higher levels of inflation.

It remains to be seen how many of his campaign promises will come to fruition, but given that Republicans have won a majority in the Senate, and the race for the House of Representatives is still too close to call, we could see many of his policies put in place. Given the vital role of the US in addressing global challenges such as climate change, peace and security, and inequality, to name but a few, the economy is just one worry in a long list of concerns about Trump's second presidency. It's hard to find any silver lining this morning.

This is an edited version of an earlier Brainstorm article

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The views expressed here are those of the author and do not represent or reflect the views of RTÉ