Much of the fear factor surrounding the incoming US administration (from Ireland’s perspective) centres on tariffs.
US president-elect Donald Trump has been threatening to impose blanket tariffs on all imports to improve the US trade balance and boost domestic manufacturing, a move that would almost certainly lead to a big disruption in global trade.
Ireland’s exposure to such a move by the world’s largest economy is significant as it exports €54 billion of goods into the US every year, two-thirds of which are pharmaceutical products, the overwhelming majority of which are produced by US multinationals.
At the launch of the Central Bank of Ireland’s latest quarterly bulletin, the regulator’s director of economics and statistics Robert Kelly outlined a potentially bigger risk.
Kelly said a change in US corporate tax designed to bring back IP (intellectual property) or patents domiciled abroad, in countries like Ireland, which he noted were “quite easy to move”, posed a potentially bigger threat to Ireland than tariffs.
He said much of the excess corporate tax flowing in here was related to IP, which was moved here post-2015. “In essence, there’s value created here because we’ve R & D and patent in Ireland ... that is what creates that excess corporate tax,” Kelly said. If the incoming US government were to adopt incentives aimed at getting these patents back to the US this could be more problematic for Ireland than tariffs.
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The last time Donald Trump was in power he brought in the so-called Gilti tax rate to target income from intellectual property such as copyrights, licences and patents, but it didn’t change things (from a US perspective) and in the end, triggered a further snowballing of tax revenue here.
This time around he could adopt a more aggressive approach. “There has been a notable focus on the Irish trade surplus and the role of US multinational profits in the Irish economy,” the ESRI said last week.
The IDA and the Department of Finance will no doubt be hoping that Trump’s campaign rhetoric turns out to be nothing more than election bluster.
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