The extraordinary €20 billion monthly surge in Irish pharmaceutical exports to the US in March is a direct result of companies with Irish bases trying to get product across the Atlantic before tariffs are imposed. The figures, contained in the latest trade figures from the Central Statistics Office, again underline how central Irish operations are to the production of drugs and key ingredients for the US market. And in turn this leaves Ireland exposed to the policies of US president Donald Trump.
The export surge in the early months of this year followed threats by Trump to impose special tariffs on pharmaceutical imports to the US in a bid to force companies to relocate production. This was never going to be a quick process.
Also, a few days ago Trump upped the ante further by signalling that he was going to use the purchasing muscle of the US government to demand lower prices from the drug companies. This may ultimately end up in some kind of negotiation in Washington.
But it is another threat to Ireland as it is likely to reduce profits from selling into the US market. Under the current tax avoidance structures used by the companies, much of this profit is recorded in Ireland and tax on it is paid here.
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As with so much of Trump’s policies, it is unclear how this will play out. So far pharma exports – though not those of medical products – have escaped any tariffs. Also, there is no indication of a change in the US tax rules which could influence investment decisions. But the determination of the US president to relocate manufacturing and drive down prices does threaten the level of production conducted in Ireland and could see it reduce over time, costing jobs and tax revenues.
There is a business logic to companies producing here for European markets and this will remain. The case for doing so could, in fact, even increase if tariff barriers are erected for pharma products crossing the Atlantic. But producing in Ireland for the US market is driven in large part by tax considerations. And this is the part of the business more likely to come under threat.
There are short-term tactical considerations here for the Government in terms of its attempts to influence and feed into the negotiations between Brussels and Washington. But it can only do so much – and the likelihood is that at least some of the key negotiations will take place in Washington between the pharma companies and the administration.
However, the Government will also realise that even before all this happened the shortcomings in housing and infrastructure here were already causing angst to major investors. This is the area under Irish control where an ability to actually make progress needs to be demonstrated to underpin future investment both from international and domestic companies.
