US tariff threats won't derail Irish economy – Davy
A new report from stockbrokers Davy said the Irish economy is well placed to navigate the latest external shock to hit the country – the imposition of US President Donald Trump’s tariffs.
Davy’s report notes that Trump’s tariff agenda has disrupted global trade and driven a spike in uncertainty, potentially inducing a recession in the US and slowing global economic growth.
It cautioned that the slowdown in global growth could negatively affect foreign direct investment (FDI).
But despite this, it said that Ireland’s economy has shown remarkable resilience against major external shocks in recent years, including Brexit and Covid-19.
“With remarkably favourable structural advantages, including a well-educated workforce and a strong national financial balance sheet, Davy believes the Irish economy is well placed to navigate this latest external shock,” it added.
But it cautioned that a downside risk is that slower global economic growth and profitability could mean smaller tax liabilities for the handful of companies paying a large majority of Ireland’s corporation tax.
Figures show that 8.1% of all corporation tax here was paid by just three firms in 2023, while the top 168 FDI tax-paying firms made up only 6.2% of employment and 6.5% of labour income.
Davy said that a Brexit-like phase of negotiations between the EU and the US regarding its new trade policies is now likely.
Brexit showed that progress in these discussions can be very slow, and a firm conclusion can take many years to reach, it added.
Davy also said that the pharmaceuticals and food & beverages sectors may face significant challenges due to potential tariffs.
Although pharmaceuticals have been exempted from the initially announced tariffs, it is expected that further measures will follow given president Trump’s comments on the industry.
Today’s report suggests that large pharmaceuticals manufacturers are likely to re-arrange their activities somewhat to minimise the impact of the tariffs rather than ceasing their operations in Ireland entirely.
Davy said that while a loss of corporation tax paid by pharmaceutical companies in Ireland looks increasingly likely, this will not necessarily have a corresponding effect on the real economy, which is measured by national income.
The report also notes significantly higher salaries in the pharmaceutical industry in the US, on average 57% higher than Ireland, not factoring in social contributions and other employment costs.
This means that any reshoring to the US would result in higher prices for consumers, who are already facing relatively high costs for pharmaceutical products.
Meanwhile, given the food sector’s broad regional importance here, Davy said there are concerns about the implications of US tariffs for Irish exporters of food and beverages.
Irish whiskey is particularly exposed, with the US representing 41% of its market share. The stockbrokers said that new markets will need to be sought, and retaliatory action by the EU against imports of US bourbon may provide some scope for EU import substitution.
But rather than an exogenous shock, Davy said it believes the biggest challenge to Ireland’s economic outlook is an internal risk – the failure to “meaningfully” address major housing and infrastructure shortfalls.
Earlier this year, its research team calculated that Ireland needs to materially the increase new construction of homes to tackle its structural housing shortage.
“While the tariff threats pose significant challenges, Ireland’s economy is well-positioned to navigate these external shocks. Our focus should remain on addressing domestic issues such as housing and infrastructure to ensure continued economic growth,” Kevin Timoney, Davy’s chief economist, said.