Tariff threats should not derail the Irish economy – Davy report
Davy Research has released a new report analysing the potential impacts of President Trump’s tariff agenda on the Irish economy. The report, authored by Kevin Timoney, Chief Economist at Davy, highlights several key concerns for businesses and the broader economy in Ireland.
Increased uncertainty is likely to slow Ireland’s economy. However, Davy believes this will be temporary.
Davy’s report notes that the tariff agenda has disrupted global trade and driven a spike in uncertainty, potentially inducing a recession in the US and slowing global economic growth. The slowdown in global growth could negatively affect foreign direct investment (FDI). Despite this, Ireland’s economy has shown remarkable resilience against major external shocks in recent years, such as Brexit and Covid-19. With remarkably favourable structural advantages, including a well-educated workforce and a strong national financial balance sheet, Davy believes the Irish economy is well placed to navigate this latest external shock.
However, a downside risk is that slower global economic growth and profitability could mean smaller tax liabilities for the handful of companies paying a large majority of Ireland’s corporation tax.
A Brexit-like phase of negotiations between the EU and the US regarding its new trade policies is now likely. Brexit showed that progress in these discussions can be very slow, and a firm conclusion can take many years to reach.
Rather than an exogenous shock, Davy’s view remains that the biggest challenge to Ireland’s economic outlook is an internal risk – the failure to meaningfully address major housing and infrastructure shortfalls. Earlier this year, Davy’s research team calculated that Ireland needs to materially the increase new construction of homes to tackle its structural housing shortage.
Concerns over Ireland’s food and pharma sectors
Pharmaceuticals and food & beverages may face significant challenges due to potential tariffs. Although pharmaceuticals have been exempted from the initially announced tariffs, it’s expected that further measures will follow given president Trump’s comments on the industry.
The report suggests that large pharmaceuticals manufacturers are likely to re-arrange their activities somewhat to minimise the impact of the tariffs rather than ceasing their operations in Ireland entirely. A loss of corporation tax paid by pharmaceutical companies in Ireland looks increasingly likely. However, this will not necessarily have a corresponding effect on the real economy, measured by national income.
The report further points to significantly higher salaries in the pharmaceutical industry in the US, on average 57% higher than Ireland, not factoring in social contributions and other employment costs. This means that any reshoring to the US would result in higher prices for consumers, who are already facing relatively high costs for pharmaceutical products.
Given the food sector’s broad regional importance, there are concerns about the implications of US tariffs for Irish exporters of food and beverages. Irish whiskey is particularly exposed, with the US representing 41% of its market share. New markets will need to be sought, and retaliatory action by the EU against imports of US bourbon may provide some scope for EU import substitution.
Kevin Timoney, Chief Economist at Davy, commented: “While the tariff threats pose significant challenges, Ireland’s economy is well-positioned to navigate these external shocks. Our focus should remain on addressing domestic issues such as housing and infrastructure to ensure continued economic growth.”
Appendix: Key Data on Ireland’s Economic Exposure and Resilience
- Concentration of Risk
- The top 5 goods exporters accounted for 44.3% of exports in 2022; 87% of exports came from foreign-owned firms.
- 38.1% of all corporation tax was paid by just three firms in 2023.
- The top 168 FDI tax-paying firms made up only 6.2% of employment and 6.5% of labour income.
These figures show that headline tax and trade exposures are concentrated in a small number of companies, not broadly spread across the economy.
- Real Economy: More Resilient Than GDP
- In 2023, GDP fell 5.5% due to weaker pharma exports, but national income rose 5% and employment grew 3.4%.
- Advertised US pharma salaries are 57% higher than in Ireland, discouraging reshoring.
- Correlation between pharma exports and employment (2000–2024) is weakly positive, at just 0.32.
Structural divergence between GDP and national income reflects limited real-economy impact from sector-specific shocks.
- Tariff Scenarios: Estimated Impact
- External modelling, though imperfect, suggests permanent 25% US tariff with EU retaliation could cut GDP by 3.7% (€19.7bn) and MDD by 1.8%.
- In a “goods-only” scenario, GDP impact falls to 2.4%, and MDD to 1.1%.
Tariffs matter, but their effect on domestic demand is less than on headline GDP.
- Sector Exposure: Food & Pharma
- Food & beverages exports to the US: €1.9bn in 2024.
- Of which, €0.4bn is Irish whiskey; the US accounts for 41% of market share.
- Pharma exports dominate trade with the US, but exports to RoW are larger and less concentrated.
Risks are real, but mostly confined to specific subsectors, especially where firms cannot shift production to the US.
