The Economic and Social Research Institute (ESRI) and the Department of Finance released a report on the potential macroeconomic effects of tariffs, de-globalisation and protectionist trade policies on the Irish economy. These measures could significantly affect the traded sector, leading to negative consequences for employment, consumption, and public finances, including declines in tax revenues.
Key findings include:
- A 10 per cent unilateral tariff by the U.S. on global imports could decrease Ireland’s GDP by 2.5 per cent and MDD by 1.3 per cent.
- A 10 per cent bilateral tariff would lead to a larger decline, with GDP dropping by 3.2 per cent and MDD by 1.7 per cent.
- Protectionist measures may negatively impact Ireland’s public finances, with declines in tax revenues.
Ireland, a major beneficiary of globalisation, is highly vulnerable to rising protectionism. A slowdown in global trade would primarily impact employment, particularly in export-driven sectors like ICT and manufacturing, which account for 18.5 per cent of total employment. According to the ERSI, job losses in these high-paying sectors could reduce aggregate demand, leading to further employment declines in domestic industries and amplifying the economic downturn.
Potential job losses would reduce income tax receipts, especially since Ireland’s progressive tax system relies heavily on high earners, many of whom work for Multinationals. While corporation tax revenues are less predictable, U.S. tariffs could potentially lower MNCs’ profit margins, leading to a decline in a key revenue source for the Irish government.
Furthermore, Ireland may suffer from a loss of economies of scale due to restricted access to export markets. Ireland relies heavily on exports, accounting for 136 per cent of GDP in 2023, compared to 33 per cent for France and 32 per cent for the U.K.
Additionally, a decline in R&D investment by companies in response to a U.S.-EU tariff war would have a “doubly negative” effect on Ireland’s productivity. The ESRI cautioned that protectionist measures from the U.S. and EU would not only hinder domestic innovation but also limit Irish firms’ capacity to benefit from innovation elsewhere. In competitive markets, firms invest in R&D to gain an advantage, but with less import competition, this motivation diminishes. Various studies have indicated that competition drives innovation by lowering the cost of investing in R&D.
The report comes as U.S. Secretary of Commerce Howard Lutnick referred to Ireland as his “favourite tax scam”, vowing to eliminate the country’s “advantage” over the U.S. Appearing on a Podcast last week, Lutnick spoke specifically of the trade surplus Ireland maintains over the U.S. and emphasised that the two pillars to the administration’s trade policy are (1) tariffs and (2) ending international tax ‘scams’. Lutnick stated that Ireland has America’s IP, specifically mentioning tech and pharma companies. On Tuesday 25 March, Simon Harris held what was described as a “constructive and engaging” call with Lutnick.
Finally, on Wednesday (26 March), Donald Trump, once again, singled out Ireland’s pharmaceutical industry while discussing the rehabilitative effects of tariffs for the U.S. economy. President Trump explicitly outlined plans to impose tariffs on imported pharmaceuticals, aiming to force drug production back to U.S. soil.
