How could a Trump or Harris White House affect the Irish economy?
Analysis: The US economy will impact the Irish economy so who should we be rooting for in Tuesday’s election from a purely economic perspective?
Irish eyes are firmly fixed on the United States this week as millions of Americans head to the polls. The level of interest in US presidential elections is always high, and this year is no exception. The race is too close to call; recent polling shows the two candidates neck and neck.
As a small open economy, Ireland is 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?
The economic policies proposed by Kamala Harris and Donald Trump are as different as the candidates themselves. But one thing is certain: how the US economy is managed in the next five years will impact the Irish economy. So, who should we be rooting for from a purely economic perspective?
A major policy difference between the presidential candidates is their proposed changes to corporation tax (CT) rates. Trump intends to cut CT rates for companies manufacturing goods in the US from the current rate of 21% to 15%. In stark contrast, Harris proposes increasing CT rates to 28%, a level far above the average rate for OECD countries.
For Ireland, the key consideration is the differential 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.
On the other hand, if Harris is elected and raises CT rates in the US, this would increase the differential between the two countries. This could lead to increased corporation tax receipts here as multinationals look to shift profits and pay tax at the lower rate in Ireland.
Tarrifs are a second major policy difference of relevance to Ireland. While Harris has not signalled any intention to change US import tariffs, 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 who would better manage the US economy, as a recession in the US would have a detrimental impact on our economy. The Economist endorsed Harris last week, stating that “Americans would be gambling with the economy, the rule of law and international peace” by voting Trump back into power.
Although both candidates would add to the already large levels of US debt, increasing the likelihood of a fiscal crisis, non-partisan analysis of the economic policies of the two candidates has found that,Trump would add considerably more to US debt than Harris. 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.
It’s clear that, on paper at least, a victory for Harris would be overall more beneficial to both the US, and consequently, the Irish economy
The former 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. Although there are also some concerns about the potential inflationary impact of Harris’s economic policies, the majority of economists agree that Trump’s policies would lead to far higher levels of inflation.
It’s clear that, on paper at least, a victory for Harris would be overall more beneficial to both the US, and consequently, the Irish economy. In practice however, campaign promises might not lead to actual policy changes, especially if there is a divided government with an opposition majority in Congress. The hope would be that, even if elected, many of Trump’s ideas would never come to fruition.
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 a Trump presidency. Like many other economists, I will be crossing my fingers and hoping for a Harris victory this week.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ