Donald Trump's latest threat on pharma tariffs raises big questions for Ireland
has made so many threats of
tariffs
that it is hard to know what to take seriously. But his latest outburst on the
pharma
sector will have been very uncomfortable news in Dublin, for a few key reasons.
The first is that while it may not be wise to take too literally the Trump threat of a " very high" tariff of up to 200 per cent being imposed on the sector in a year to 18 months, it is nonetheless a statement of an intended direction. And it comes after the administration has undertaken a review of the pharma sector and where it produces and pays its taxes.
The message emerging from this is clear – Trump wants more pharma production for the US market to be undertaken in the US itself. His way of going about it is economically risky and damaging for the US too. For the sector, relocating production in a year to 18 months would be, in most cases, simply impossible and in many cases producing in the US would push up costs significantly compared, for example, with countries such as India. American consumers would be hit.
Nonetheless, pharma remains firmly in Trump's sights and Ireland is a big part of this story, as the location from which a host of big US players send products back home. For the Irish economy, the big pharma players are not just a key source of jobs – for about 70,000 largely skilled staff – they also, together with tech, underpin the massive growth of corporate tax here in recent years.
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Some 40 per cent of the exports from the Irish pharma sector goes to the US. Trump says he wants these drugs and key ingredients made at home, both for economic and national security reasons, though it remains to be seen how the 'doability' of this is framed in the report from his administration, which has yet to see the light of day. The powerful pharma sector will also have a say in how this all plays out – Trump will not be able to simply dictate what happens.
This threat raises questions for the EU in its
trade talks
with the US. Does it accept a wider high-level agreement on tariffs in general, while still leaving this threat hanging over pharma – and possibly semiconductors too? Trump has isolated these two sectors for special treatment and threatened tariffs on a different legal basis. The US may want to do a general deal and come back to these sectors later, as Trump has now indicated.
We will have to see how this plays out. But Ireland is the country most exposed on pharma and other member states have other concerns – such as Germany and its car sector, for example. So there are risks here for Ireland and diplomatic questions, too. It would not, as one observer put it last night, look good for the Government if the EU pushes ahead with a tariff deal without having some comfort for Ireland on pharma. Ireland's Brussels diplomats face a busy few weeks.
Like other member states, Ireland also faces risks from Trump's general approach to tariffs. The food and drink sector is already being hit and the EU efforts to avoid further tariffs of up to 50 per cent – as threatened by Trump – have been supported by Dublin. But now things look a bit more complicated.
The economic risks from pharma tariffs are both short term and long term. In the short term, a gradual build-up of tariffs on imports to the US – if that is what Trump intends – would encourage big pharma firms to change their pricing arrangements and import products into the US from overseas production locations such as Ireland at a lower price. In turn this would mean lower profits declared in Ireland and less tax paid here.
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Irish economy faces serious risks if EU-US trade deal not reached in next 48 hours, Chambers says
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Over the longer term the fear is of a drift away of investment from Ireland. We would hope that pharma companies would continue to invest here to produce for other markets, but Trump is intent on making exporting back to the US much more difficult. Trump's 200 per cent tariff threat may be just the latest top-of-the-head notion. But it does show his intent to find a way to pressure the sector and this poses dangers for Ireland.
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