When Taoiseach Micheál Martin visits the White House in March, assuming the invite lands, is there a deal to be done with US president Donald Trump? Not straight away, for sure. And as the key sector in immediate focus is the pharmaceutical industry, its big players would have to be involved, too. As would the EU. But let’s consider what is at stake and how a deal might play out.
There is one key question first. It is whether Trump is looking for a “deal” and hoping his tariff threats will bring things to a head quickly – or whether he is genuinely intent on putting up walls between the US economy and the rest of the world, imposing tariffs as a long-term barrier and a revenue raiser for the federal government. The latter course would be likely, at some stage, to lead to a big drop in equity markets and quite possibly a crisis of confidence in the US economy from its lenders. Think Brexit on steroids.
But let us assume that the president chooses the less risky course and continues to look for “wins” that he can parade to voters, some tangible and some more apparent than real, like the deals with Mexico and Canada under which they promised to move some troops to their border in return for a postponement of new tariffs.
Martin’s issue, as he visits Washington DC, is that Trump has two particular beefs with Ireland. One is the way big US companies organise themselves to manufacture drugs and active ingredients in Ireland and declare the bulk of the resulting profit here, despite the key research and development having taken place in the United States. The other is the European regulation of the big digital services companies like Meta, in which Ireland plays a central part.
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Pharma looks to be first in focus, with Trump threatening 25 per cent tariffs on imports into the US, rising as time goes on. This would breach a World Trade Organisation agreement that essential medicines and their ingredients are exempted, but that is unlikely to worry the president. If this lasted for any length of time, it could – depending on the scale and nature of the tariffs – seriously damage the economics of producing drugs and pharma products in Ireland for the US market.
Trump wants the big companies to bring production back to the US. This issue predates his administration, with Covid-19 and its aftermath underlining fragilities in the supply chain of drugs to the US market, even leading to shortages in some cases. Despite this, manufacturers were closing factories in the US, seeking lower cost or lower–tax locations abroad.
The US president has been meeting big pharma, and its bosses will have put their case. Supply chains for cheaper generic drugs in particular are based on low-cost production in places like India. It would cost a lot more to produce these drugs in the United States and prices to consumers would rise. And even bringing back production from a higher-cost country like Ireland takes time. There is some spare capacity in the domestic plants of the US pharma sector. However, a report by Washington University found that even repurposing what is already built would take two to three years. New plant construction would take even longer.
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This is not an attractive timescale for a president in a hurry. If he wants a quick win, the only obvious place to look is the pricing along the supply chain as pharma products are produced in Ireland and other European countries and shipped back to the US for sale or final processing. Using “transfer pricing” arrangements based in part on their intellectual property assets – copyrights, licences and patents – being held in Ireland, these companies ensure that most of their profits are declared here. Uncle Sam gets expensive drugs and very little tax.
Big pharma could promise to declare more profit in the US – and so pay more tax there – and to squeeze prices down for US consumers by cutting costs along the supply chain. More tax and lower prices is a deal Trump could sell. Ireland’s corporate tax receipts would take a hit, as with those of other countries where US companies have overseas plants. The pharma companies would make a bit less money but avoid tariffs.
As the EU negotiates on trade issues on behalf of member states, any agreement would have to fit in with its wider negotiations with Trump and presumably also cover production across the union, with Germany the other key member state involved in pharma exports to US. Big pharma might also commit to producing more in the US in the years ahead or bring some IP from Ireland and other countries back home. US tax changes, which played a large part in this relocation abroad of production, could be changed to encourage this. But these things would take time.
If there is a deal to avoid tariff upheaval in pharma that is what it will look like. Ireland would hope to hold most of what it has already – after all these firms also produce for many other markets – and go from there.
For the digital service firms, it is less clear where a quick deal might lie. Many have tied themselves to Trump, emboldened by his support of lower regulation. Perhaps Europe may give a bit here, but it will not – and should not – change on the fundamentals of regulation. Indeed, the European Commission has let it be known that if push comes to shove and Trump imposes tariffs or other measures to try to force Europe’s hand on regulation, it would consider retaliatory measures which would seriously damage the ability of these companies to do business in the EU. With a lot of the international headquarters of these companies here, that could get nasty for Ireland. We must hope that some deal here could also form part of a wider EU agreement with Trump, though the ground for compromise may be hard to find.
Looking at it logically, are Trump’s big tech pals really up for a battle in Europe which could seriously damage their businesses? Some may be. But we are looking at big firms with big institutions as shareholders. Many are US investors and may be cheering Trump for now, but will be worried about the risk of crashing share prices if the international reach of the big digital firms is disrupted by the president’s policies.
Trump is prepared for chaos, but how much? That is the key question for which we may have some kind of an answer in the months ahead as we see what happens to the threat of reciprocal tariffs and special ones on pharma and chips. If he wants a deal on pharma, there will be a cost to Ireland. But if not, the costs will be far higher.
