US election could spell trouble for Irish economic model

While much has been written about the strong bond between Ireland and the United States, a wrinkle in Irish-American relations has appeared in recent weeks. US president Donald Trump has name-checked Ireland several times in his vows to bring pharmaceutical production back to the United States.

"It's not only China, you take a look at Ireland. They make our drugs. Everybody makes our drugs except us," he said this month. "We're bringing that whole supply chain back. Nobody has to tell me to do it, I've been talking about that for years."

It is the second time Trump has singled out Ireland in recent weeks.

The coronavirus pandemic has put a new focus on global supply chains and the US’s reliance on other countries for the provision of life-saving drugs and medical devices.

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American TV stations frequently airing discussions about bringing supply chains back to the United States. Trump's "America First" policy that helped propel him to the White House in 2016 has taken on new relevance as the coronavirus has shone a light on the mechanics of global trade.

While most of his comments are geared towards China, Ireland has also evidently caught Trump’s eye.

The value of Irish exports to the US is enormous.

A recent report by the Congressional Research Service, a nonpartisan federal agency that provides information to Congress, found that the US imported $36 billion worth of pharmaceutical and medical equipment, products and supplies from Ireland in 2019. The figure from China was $21 billion.

CSO figures last week show that exports from Ireland surged in March alone to €15.7 billion, driven mostly by a jump in demand for medical, pharmaceutical and organic chemical products.

Much of this is manufactured by US companies with substantial bases in Ireland such as Bristol-Myers Squibb, Pfizer and Merck.

Two-way street

Irish officials and Government Ministers have been keen to stress that US-Irish investment is two-way.

Irish companies in the United States employ more than 100,000 people, the argument goes. But in reality the majority of these jobs are accounted for by large, listed companies such as CRH – companies that expanded in the US by acquiring American firms and employees.

In contrast, much of the US investment in Ireland has been “greenfield” or new investment that has created thousands of jobs.

Behind the scenes, Irish officials in Washington have been striving to differentiate Ireland from China in discussions with the White House, portraying Ireland as a reliable strategic partner to the US, unlike China, which is increasingly being viewed as a geopolitical rival.

This has been accompanied by practical measures. Despite the collapse in global travel, flights from Ireland are landing each day in the United States carrying products and equipment.

Similarly, the practical realities of shifting production back to the US may simply be too onerous on companies.

Irish officials breathed a sigh of relief that Trump’s corporate tax cut of 2017 failed to entice many companies back home.

However, further tax reform may be imminent. Top White House adviser Larry Kudlow indicated that corporate tax could be cut from 21.5 per cent to 10.5 per cent for companies that agree to relocate to the US.

Rare agreement

Any hopes that the issue will disappear if Trump loses November’s election may be misplaced.

Joe Biden, the presumptive Democratic nominee, has also pledged to get tough on corporations that keep their profits offshore. The desire to repatriate American jobs is not confined to Trump's White House, but has broad support across the political aisle in Washington.

While Ireland may ride out the current threats by the US president, the move towards protectionism globally is concerning given the Irish economy’s deep dependence on inward investment.

Coronavirus may prove to be a turning point in the history of globalisation, the defining economic policy of recent decades.

Countries across the world – and not just the US – are turning inwards, as nations pump money into their economies, close borders and rediscover the attraction of self-reliance.

Like many aspects of Covid-19’s impacts on our lives, it is unclear if this new questioning of globalisation is here to stay or a passing phenomenon.

Ireland has already been forced to close loopholes and make changes to its corporate tax regime under pressure from the EU and the OECD as it became clear that the public mood internationally was turning against low corporate taxation. The pandemic may mean that Ireland cannot be complacent about the low-tax, open-markets model of inward investment that underpins the economy.