Ireland has climbed up an important international league table. But in this case it might have preferred to stay lower down the rankings.
In 2023, according to US data, Ireland was sixth in a list of countries with which the US has a trade deficit in goods, ranked by the dollar amount of the deficit. In 2024 Ireland climbed to fourth, behind China, Mexico and Vietnam – having overtaken Germany and Japan.
For a smallish economy, that leaves Ireland exposed as the Trump administration focuses on countries with which the United States has a deficit, seen by the president and his advisers as an indicator that the US is being treated unfairly.
The figures
The US department of commerce recently published its data for the US trade relationship with other countries in 2024, with an overall deficit in goods trade of some $1.2 trillion (€1.1 trillion). It is worth noting that while all the focus is on trade in goods, the US has a significant surplus of more than $300 billion in trade in services, an area which has grown much more rapidly in recent years.
The US deficit on goods trade with Ireland was recorded as $86.7 billion, up from $65.5 billion the previous year. It is too early for a full breakdown, though we know from the Irish data that pharma exports – mainly from US plants here back to the American market – were responsible for the bulk of this.
It is worth noting in passing, too, that the US figures are compiled on a different basis from the Irish ones, and so the figures are not directly comparable. (The US figures are on what is called a balance of payments basis, while the Irish figures are the more commonly used ones based on customs movement – these treat aspects of the international production and movement of goods in different ways).
The reason
The widening US trade deficit with Ireland is really all about one thing – pharma exports. Following a surge during the pandemic and a post-Covid fall back in 2023, pharma exports to the US soared again in 2024, up by more than €18 billion in the first 11 months of the year to more than €41 billion.
These companies are also significant importers into Ireland from the US of chemical ingredients for their products, but the high-value finished products going back the other way are worth a lot more.
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Over the longer term, the US deficit with Ireland has grown from about $23 billion in 2018 to $87 billion last year, driven over that period largely by the big surge in pharmaceutical investment here, with significant sales aimed back at the American market.
The last decade also seen a surge in technology investment in Ireland from the US – notably in the area of digital services. The bulk of these companies target markets outside the US for their exports from Ireland.
Big digital firms such as Meta and Google do affect the Irish trade balance, but not for trade in goods – the area Trump focuses on – rather in services.
Because of the way they structure themselves, these companies – and the pharma giants – engage in arrangements with their US parents which pushes up Irish services imports from the US.
This is because the Irish subsidiaries are paying for the right to use intellectual property – copyrights, patents and licenses – developed in the US. These arrangements are also central to tax planning by the companies involved, allowing them to – legally – declare more profits in Ireland.
While in relation to tech there are likely to be serious tensions on regulation, on pharma Trump has repeatedly said in recent years that he wants to see more production relocated to the US.
In all the noise about Trump’s policies, it is clear that combating trade deficits remains a key goal
Brad Setser, an expert in the area and a senior fellow at the Council for Foreign Relations, said in 2023 evidence to a congressional committee: “There is no plausible explanation for the current scale of US imports of pharmaceuticals from Belgium, Ireland, Switzerland, and Singapore that isn’t tied to tax avoidance.”
His research points, ironically, to Trump’s 2017 Tax and Jobs Act as a key driver for US pharma companies to set up high value production plants overseas as a way of further cutting their US tax bills. In a blog last year he pointed out that the combined US tax liability of the top seven American pharma companies in 2023 was effectively zero. This “own goal” should be a focus of US policy, he argued, with measures needed to encourage high value production – and tax payment – in the US.
Why this matters
In all the noise about Trump’s policies, it is clear that combating trade deficits remains a key goal.
Tariffs are an important policy identified to achieve this, even if they are unlikely to make a significant difference, at best encouraging other countries to reduced their own tariffs on US imports, but also pushing up inflation for US consumers.
There are big contradictions here in terms of other aims – combating inflation, for example – but we just have to see how these balance out.
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As recently as this Tuesday, Peter Navarro, a key Trump adviser on the economy and trade, when talking about tariffs said that the US is going to look at all of its trading partners “starting with the ones with which we run the biggest deficits with, find out if they are cheating the American people, and if they are going to take measures to correct that wrong”.
As Trump rolls out his tariffs and tax changes in the months ahead, he is likely to focus on specific targets and Ireland’s big pharma driven trade with the US puts the State in the crosshairs.
Ireland will closely watch for any changes in the tax structures of US companies, too, in response to tariff or tax issues
Ireland will argue – correctly – that big US tech and pharma companies and their shareholders have done very well from their investment in Ireland. And that Irish companies are themselves big investors in the US market.
Tariffs on pharma also risk pushing up prices in the US market and would be contrary to a World Trade Organisation agreement to zero rate drugs and their key ingredients.
However, as Carol Lynch, BDO partner specialising in trade pointed out, Trump has shown that he is not bound by international rules and so pharma tariffs can by no means be ruled out.
A crucial few weeks lies ahead for Ireland as this plays out. Brussels will negotiate with Washington ahead of deadlines for imposing tariffs – that much was agreed at an European Union (EU) trade ministers meeting this week – but where this will land remains unclear.
And the uncertainty in itself is damaging, with Martina Lawless, research professor at the Economic and Social Research Institute, saying companies were likely to halt investment and sit on their hands now to see how things play out – much as many did during the Brexit talks – and that this in itself is an economic cost.
Industry sources agree and point out that in the case of pharma, production is not easily moved as a new factory involves a complex regulatory process lasting years.
Some moves availing of spare production in the US market remain possible and Ireland will closely watch for any changes in the tax structures of US companies, too, in response to tariff or tax issues, which could lead to a hit to revenues here. But big manufacturing investors play on timelines of a decade or more so, for now, they will watch and wait.
