Reality and the rules of economics will catch up with Donald Trump at some stage. But perhaps not for a while yet. For a small country like Ireland, hugely reliant on the US, there are dangers here, though the evidence of Trump’s first year in office is that they may be more over the next three to five years than immediately. Goodness knows short-term turbulence will always remain a risk. But what Ireland really needs to focus on is the medium term and in particular the risk of Trump-driven manufacturing investment in the US threatening Ireland’s jobs and tax revenues.
Short-term risks remain. Ireland could still get caught right in the middle of a damaging trade war. But approaching the midterm elections in November, the US president will probably avoid anything that will slow growth in the US and upset voters – and a trade or wider economic war would do just that.
Trump will try to get the economy speeding along and face the consequences later. The price of this, in time, is likely to be higher inflation and a lower US dollar, but that won’t stop him.
Tariff threats will continue to be thrown around. But the lesson of year one is that a lot simply do not happen. There has been a significant change. The average tariff on goods entering the US has risen sharply – from less than 2 per cent under Joe Biden to around 14 per cent now, with the bulk of the extra costs falling on the US consumer.
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But time and again Trump has backed away or delayed. He knows tariffs affect the cost of living, despite his administration’s denials. There is no sign, for example, of the special report commissioned on chip production and pharmaceuticals which could have been a prelude to damaging tariffs on exports from Ireland in these sectors. Threats of extra tariffs on six EU states over Greenland came and went.
Trump has also trimmed his sails on his appointment of the next chair of the Federal Reserve Board to replace Jerome Powell whose term ends in May. Rather than one of the Trump loyalists from the White House, he is to nominate Kevin Warsh, a financier and academic who was previously on the Fed board and has strong connections on Wall Street. Markets believe he is likely to take a more middle-of-the road line than some of the other potential nominees. That said, there is a long way to go on this story of the administration’s wish to have a bigger say in the policies of the Fed, which has the potential to cause serious wobbles in the US dollar and the bond market.
The lesson of 2025 is that there are constraints on Trump from his domestic constituency and also from the financial markets. A pending US Supreme Court decision on the legality of his reciprocal tariffs will also be significant.
That does not mean Ireland is somehow in the clear. Far from it. A world dominated by the might of superpowers is, as Mark Carney said in his much-quoted speech at Davos, as did German chancellor Friedrich Merz, a tricky one for medium-sized countries, never mind smaller ones such as Ireland. There are big geopolitical questions here for Irish policymakers in the nature of our relationship both with Washington and Brussels – and other capitals – and how we develop what might be called “resilience” by building up our national defences, energy security and public finances. Might Ireland, for example, benefit from developing closer links with Carney’s Canada? And how can we seek to diversify trade under the EU umbrella both within Europe and beyond?
Given the extent of our relationship with the US, there are no quick fixes here. There will be hope of a different US post Trump. But nostalgia for the way things were does not look like a policy in a changed world.
There can be no stepping back from plans to keep putting cash aside each year to allow State investment to continue if there is a hit to tax revenues. If anything, we need to be doing more
A more concrete danger may emerge from Trump’s pressure on big US manufacturers to invest in additional manufacturing facilities “at home”. As IDA chairman Feargal O’Rourke said this week, these big players will always want plants around the world, though Ireland is facing increased competition from countries with “much deeper pockets” to get them.
But their accelerated investment programmes at home brings dangers for Ireland in key sectors such as pharma and tech as these plants start to come on stream. It may limit their worldwide spend on foreign direct investment. It could damage Ireland’s pipeline for investment over the next few years. And there is also the risk of the transfer of production of more valuable products from Ireland back to the US when these new plants are complete. This could damage job prospects here and also put a hole in corporate tax revenues, which have been hugely inflated by the decision of these big companies, notably in pharma, to locate the manufacture of expensive products here, at least in part for tax reasons.
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Ireland’s exposure to the fortunes and decisions of a few companies is thus inflated further by Trump’s policies. What if Eli Lilly – which is undertaking new investment here but also at home – moves the production of one of its blockbuster weight-loss drugs from Ireland to the US?
Ireland cannot insulate itself completely. But as well as geopolitical thinking, there are practical consequences. The risks to the public finances are being pushed another notch higher. There can be no stepping back from plans to keep putting cash aside each year to allow State investment to continue if there is a hit to tax revenues. If anything, we need to be doing more.
The pressure to deliver on these State investments, meanwhile, is all the greater, to underpin longer-term productivity vital for foreign and domestic industry. Ireland also needs to urgently refresh its education and skills policies – even though the jobs market is clearly softening, notably in tech. A recent Ibec report found that more than eight out of 10 companies were reporting critical skills gaps. A low unemployment rate and readily available jobs has left Ireland complacent.
The bumpy ride ahead puts a premium on Ireland shoring up its economic defences – as well as its real ones. The stories this week about the failure to deliver flood defences across the State is symptomatic. The official “system” thinks everything is okay once there is a plan in place to tackle something and some kind of “process” is under way. Targets for delivery need to actually start meaning something.
