The two main candidates in the US presidential election have put forward different policy platforms of vital interest to Ireland given the State’s reliance on inward investment from America and the wider health of the world economy. Here are the key things you need to know:
1. The Congress factor: Political election promises always need to be assessed sceptically. But in the US this is even more the case in presidential campaigns. In most areas of economic policy, the president will need congressional approval for policy changes. The seemingly endless negotiations on proposals made by president Joe Biden show how messy and drawn out this can be and how many presidential proposals change, or just die. So the shape of the next Congress is vital.
In addition to electing the president and vice-president, US voters will also decide who fills all 435 seats in the House of Representatives and 34 of the 100 seats in the Senate. At the moment Democrats control the Senate and Republicans have a majority in the House. The ability of the next president to get their agenda through will be determined by whether Congress is under control of their party.
2. Different views on corporate tax: Donald Trump has said he intends to cut the main corporate tax rate to “as low as” 15 per cent. He has form here, as in office the last time he cut it from 35 to 21 per cent as part of a big tax reform plan. Kamala Harris takes the opposite approach and is sticking with Biden’s goal to increase it to 28 per cent.
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What happens here is important for Ireland as the tax gap between Ireland and the US has been a factor encouraging American companies to locate here over the years. Were the US rate to be cut by Trump to 15 per cent, it would wipe out Ireland’s corporate tax advantage, as big American companies currently pay at the same rate here. Of course the detail and how earnings coming back from overseas to the US are taxed would be important.
The Harris plan, on the other hand, would underpin the tax reasons for US companies to continue to invest abroad in countries such as Ireland, as 28 per cent is a high rate by international standards.
Donald Trump, in a call to Fox News during the Democratic Convention on Thursday, underlined this point, saying such a hike would cause more companies to move overseas, “like the pharmaceutical industry moved to Ireland” and other international locations. Trump has previously referenced the move on big US pharma companies to Ireland, including in another Fox interview in 2020 - and vowed to bring the production of key drugs back to the US. *
Analysis by US economist Brad Setser of the Council on Foreign Relations think tank, has repeatedly pointed out that US pharma companies arrange their affairs to pay little tax in the US and a lot in countries like Ireland, but US consumers still get hit with high prices. He has lobbied for a series of tax changes which would reduce the profitability of doing this and aim to attract investment back to the US - and this has remains an exposure for Ireland. Ironically, while Trump has highlighted the issue, Setser identifies his 2017 tax reform package as a key factor in spurring the move of US multinationals abroad.
Tax plans by either Harris or Trump would be part of budget packages that would require long negotiations with Congress and many compromises. In this context one Irish close observer of the US scene said the corporate tax proposals may be little more than political “virtue signalling” by the candidates.
A key issue here is that many of the personal tax cuts introduced by Trump in 2017 run out at the end of next year – and so negotiations are needed with Congress on what happens next. While there was no end date on the corporate tax rate cut, inevitably what happens here and what it means for the financing of the entire package will be part of the negotiating mix.
3. Tensions on trade: A key point of the Trump economic doctrine is that other countries are “taking advantage” of the US through trade policies. To address this he has proposed tariffs – or import taxes – of 10 per cent and has even recently mentioned a figure of 20 per cent. He also wants to apply 60 per cent tariffs on imports from China.
Could Trump push this through? Like most areas of economic policy, Congress has the power to regulate foreign trade and, for example, approve new trade treaties. However, when last in office Trump used special presidential emergency powers to introduce tariffs on steel and aluminium imports, avoiding the need for Congressional scrutiny. He was also able to withdraw from a number of trade deals.
He might try to use similar emergency powers to impose new wider tariffs if re-elected, though legal challenges claiming he was exceeding his powers could not be ruled out.
Tariffs operate as a special tax levied as the goods involved enter the country. As well as reducing imports they would push up prices for US consumers as they are passed on, a point Harris has underlined.
For Ireland the massive exports of the US pharma sector from Ireland to the US would – presumably – be covered by tariffs, along with other sales in areas such as drinks. The impact of this is hard to guesstimate as many of the pharma supply chains are driven in part by tax planning. However, it would presumably reduce export volumes, could hit tax payments in Ireland and also affect longer-term investment here in the sector. Were it to be accompanied by tax changes in the US, the impact would be even greater.
The prospect of a trade war with tit-for-tat retaliations between the US and Europe would also be real, threatening to reduce growth and hit trading countries such as Ireland. The uncertainty this kind of scenario would create, and the hit to world growth, is probably the most consequential risk for Ireland from November’s poll.
But whoever is in power, the old-style free-trade agenda, which had been in place for many years, is over – on both sides of the Atlantic. The suspicion of China and Chinese policies in the US now crosses party lines and will lead to tensions whoever is in power, though probably more acute with a Trump presidency. And what might be called the “economic security” agenda – securing supply lines and vital industries at home, or in “friendly” countries – now holds sway. So both the US and the EU will continue to subsidise key industries – such as computer chips – to locate in their territories, and debates on issues such as tariffs will be dominated by discussions on security, mixed in some cases with old-fashioned protectionism.
The spat between the EU and China this week, with China threatening to examine dairy imports from Europe, including from Ireland, in return for an EU move to put tariffs on Chinese electric vehicles is a sign of what is to come, and how Ireland can be affected. Already the export of chips from Ireland to China has been affected by a sales ban on some advanced products introduced by the Biden administration. Trump would ramp up these tensions, but they will be there whoever wins.
4. The cost of living: In recent weeks the economic debate has focused on the cost of living – the pressure on lower and middle earners and the longer-standing issue of a younger generation struggling with high costs, particularly housing. The old-style free trade agenda was seen to benefit Wall Street and the better off and widen the earnings gaps across society. Now, even though inflation has fallen, prices remain high. While Biden had focused on America’s relatively strong top-line growth and jobs figures, Harris has tried to tackle this cost-of-living issue head on.
She has focused on building more houses at more affordable prices, subsidising families through a range of spending and tax breaks, notably a child tax credit, and also tackling “price-gouging” in sectors such as drug costs and groceries through controls on prices. This has got a mixed reaction, with Trump criticising it as “communist” price controls and businesses warning it would hit supply and push up prices.
Harris, meanwhile, has dubbed the republican candidate’s tariff proposals as a “Trump tax” that would push up prices. The Petersen Institute has said a 10 per cent tax on imports could increase costs for the average family by $1,700 annually and that a 20 per cent tariff, plus 60 per cent on imports from China, would cost $2,600 a year, an average income cut of 4.1 per cent, with lower earners hit hardest.
The reality is politicians can only do so much about the cost of living, but the incumbents tend to get blamed when things go wrong. This will also be a dominant issue in the Irish general election campaign and provide the same dilemmas for our politicians on how to respond. Inflation has fallen here, too, as in the US, but prices remain high and the same issue of affordability for people applies.
5. Economic stability: Financial markets, after a wobble last month, are taking an optimistic view of the outlook despite some bubbling recession fears. Trump’s tariffs are seen as a risk, potentially pushing up inflation and cutting growth. And his policy on restricting immigration could also hit growth by limiting labour supply as well as as being socially divisive. Harris is seen as signalling more of the same in economic terms, though obviously her ability to change things will depend on the shape of Congress. Neither is seen to have a strategy to stop the massive US national debt – now $35 trillion and rising by $1 trillion about every 100 days – from rising further. Financing this is not a problem, for now anyway, but were a recession to loom it could come into sharper focus. The tax and spending plans of both candidates would hike the debt further, though the Harris plan to raise corporate tax is a nod to trying to be more responsible.
Overall, the unpredictable nature of Trump and his tariff and trade plans make his presidency look a good deal riskier economically. And for a small, exporting country such as Ireland, this is important. Trade tensions and upheavals look inevitable. But the state of the US public finances, the cost-of-living pressures and the uncertainties over growth will challenge whoever wins in November.
* This article was updated on Friday, 23rd August 2024, to include Donald Trump’s comments on the pharma sector
