Around 70,000 people work in the pharmaceutical sector in Ireland. A high proportion are graduates, earning very good salaries.
On top of bumper income tax from this well-paid workforce, the companies involved account for much of the €9.5 billion corporation tax collected from manufacturing. So these firms are important for both the public finances, and the wider economy.
Last year, Irish exports of pharmaceuticals amounted to around €125 billion, 40 per cent of national income. The major destinations by value for these goods were the EU, accounting for 45 per cent, and the US with around 43 per cent of total sales.
Between them, the US multinationals Pfizer, MSD, Eli Lilly, and Johnson & Johnson employ around 20,000 people across Ireland, alongside many other US firms.
READ MORE
While the low corporation tax is a particular attraction for US multinationals, it’s not the only draw. Because we have a pool of labour with sector-specific skills, major pharmaceutical companies from other countries, like Switzerland and Denmark, are also investors here.
Trump‘s tariff policies are explicitly linked to enticing – or forcing – manufacturing back to the US from its current locations
Though pharmaceutical sales to the US were not included in the first round of Donald Trump’s tariffs, he has made it clear that pharma manufacturing is in his sights. One possible factor delaying punitive US action to date is that in many cases the brand-name medicines imported by the US are the only product available to treat particular medical disorders.
A tariff on such products would not reduce imports, and much of the cost of the tariff could be passed on to US consumers.
In the case of other unique products, the US is citing security concerns as to why the relevant goods should be produced domestically. But this is never going to be possible for all pharmaceuticals, not least because US patent law protects new drugs from alternative suppliers for a period of years. Thus, if the drug is produced abroad, the US will either have to import it, or lose out on its therapeutic benefits.
Because of these complications, the US administration is taking its time to work out its best approach. It is still intent on taking some action, which will undoubtedly have adverse consequences for the pharmaceutical sector in Ireland.
Brand-name drugs sell in the US for four times what similar products sell for in the rest of the world, ensuring the profitability of the predominantly US-owned companies involved.
However, this price difference means there is a significant mismatch between the volume and the value of Irish-made drugs going to different markets.
Under 20 per cent of our pharmaceutical exports by volume go to the US, and over 80 per cent elsewhere, while the US accounts for over 40 per cent of such sales by value.
So even if pharma exports to the US are disrupted by whatever action the Trump administration will take, the volume of output needed to supply other markets will mean that overall production won’t fall too far.
Thus, while employment in the sector here would be affected, depending on the nature and scale of US action, we should not experience a major decline in pharma jobs.
Given the premium prices fetched by drug exports to the US, these sales account for the bulk of the healthy profits earned in the sector here. Any tariffs or restrictions on imports into the US will hit hard the profitability of pharma multinationals based in Ireland.
In turn, that will have a big impact on corporation tax paid by the sector.
Trump‘s tariff policies are explicitly linked to enticing – or forcing – manufacturing back to the US from its current locations. Re-shoring is more complex for some sectors than others: pharmaceuticals require a long lead-in time to build new factories or upgrade shuttered manufacturing facilities.
While the low corporation tax is a particular attraction for US multinationals, it’s not the only draw
With pharmaceuticals, an added delay factor in bringing US drug manufacturing back home is that new pharma plants will need regulatory approval for the production process to ensure safety for human health. There is a strong logic for American firms to leave the manufacture of drugs for non-US markets in Ireland, even if some production of drugs for the American market eventually relocates to the US.
Trump’s signature tax bill is set to reduce health coverage for many US residents. To court some popularity on health, another possible approach by the US administration could be to try and force down the cost of brand-name drugs in the US. That would not, however, be popular with the US companies so targeted, as it would make a major dent in their profits, and Irish tax receipts.
Whatever strategy the US adopts, there are serious risks to Government revenue from the sector after 2026.
