The whole world is in thrall to the whims of Donald Trump’s tariff agenda, as it has been since the 47th president of the United States’ swearing-in last January.
We’ve learned a few uncomfortable truths along the way. Much of the early outcry from America’s allies and trading partners surrounded the lack of economic logic to the imposition of tariffs – which are effectively a tax for Americans on foreign products, in theory making them less attractive to US consumers and heightening the allure of their own domestic suppliers.
Critics said that the new regime would disrupt the world economy needlessly and perhaps bring about a global recession. That may well come to pass.
The problem is that in this stand-off America has the greater wherewithal in terms of raw economic power. It holds the cards as Trump himself might say. And nations worldwide are beginning to fall into line, the EU just the latest after agreeing to a blanket 15% tariff on goods and services going forward.
The spin is that the pain of those tariffs is worth it in order to avoid a global trade war. Also, 15% is better than 30% or worse, is the thinking.
Whether that represents capitulation in the face of bullyboy tactics, given that little or nothing has been asked of the US in return, is a separate conversation.
Here in Ireland we have a bigger problem though, and that problem is the pharmaceutical industry. That industry contributes massively to the economy here via billions of euro in corporation tax contributions, with about 90 companies employing 50,000 people in highly-paid roles.
A total 30,000 of those jobs are with American firms.
Should foreign pharmaceutical concerns exit Ireland the impact on the country would be catastrophic. The industry globally had pleaded with Trump for it to be exempted from any tariff regime, ostensibly for altruistic reasons – that lifesaving medicines shouldn’t be subject to capricious taxation.
At an EU level, the industry asked that the bloc not apply reciprocal tariffs, one wish that has at least been granted.
Oddly enough, in Trump’s world of permanent grievance where everyone has been making a sucker of the United States for decades, the outsize presence the US pharmaceutical industry holds in Ireland is one situation on which he indisputably has a legitimate point.
Drug prices in the US can retail for as much as five times what an EU citizen would pay. Meanwhile, American pharma firms make a pretty penny avoiding American tax by basing themselves here. Trump’s protectionist agenda demands that those jobs and companies should return home.
The Government has been worrying about and planning for a worst-case scenario in terms of tariffs on pharmaceuticals for months.
But what of the pharma industry itself?
The official line from the Irish Pharmaceutical Healthcare Association (IPHA), the industry’s lobby group here, is that it is reviewing the announcements coming out of Washington as and when they happen “as key implications for the pharmaceutical sector remain uncertain”.
A stance it’s hard to argue with given the whole world has grown used to the haphazard nature of the Trump administration’s demands.
The European Federation of Pharmaceutical Industries and Associations (EFPIA) notes that tariffs are “a blunt instrument that will disrupt supply chains, impact on investment in research and development, and ultimately harm patient access to medicines on both sides of the Atlantic”.
It added that if the goal is to rebalance trade and ensure a “fairer distribution” of how pharmaceutical innovation is financed, then “there are more effective means than tariffs that would help”.
The IDA, the body with prime responsibility for attracting foreign investment to Irish shores, says of the pharma implications that it “welcomes” the deal made between Europe and the US, arguing it provides “much-needed certainty for Irish, European and American businesses who together represent the most integrated trading relationship in the world”.
“We are very much reliant (on the US market), there’s no arguing with that,” says one industry insider. Last year a massive €44bn in pharmaceutical products were exported directly from Ireland to the US.
“But when you stand back €100bn was exported globally. So half went to America, but it’s not like all business went there, though it is certainly the biggest partner,” says the source.
That doesn’t mean that those massive American companies holding bases here – MSD, Pfizer, ELI Lilly, Johnson and Johnson etc – are about to up sticks on the back of the new tariff regime.
“They are not going to leave today or tomorrow, no. But it could definitely impact future investment decisions,” the source says.
One of the problems is that a great deal of uncertainty still surrounds the 15% tariff agreement, particularly with regard to pharma.
For starters, most people concerned thought that the pharmaceutical industry wasn’t to be included in the deal. Then about two hours after the deal was agreed European Commission president Ursula von der Leyen said it would be included, a point Trump appeared to back up.
The following day the White House produced a ‘fact sheet’ describing how the new regime would work, and affirming the 15% rate for pharma. Except that the same sheet stated that the European Union would pay the tariff – which isn’t how tariffs work.
Then there is the Section 232 investigation which the US Department of Commerce initiated into the pharma industry in April – aiming to establish if how the pharmaceutical system worldwide currently functions impacts negatively on the US from a national security standpoint.
Should the answer arrived at be a ‘yes’, then additional tariffs on pharma may well follow (such investigations typically take a minimum of six months to conclude, so we’ll probably get an answer sometime towards the end of the year).
“Pharma plans in the long-term,” says Aidan Meagher, tax partner specialising in life sciences with consultants EY, noting that most pharma manufacturers will have been planning for this scenario for months and will have frontloaded stock into the American market, thus negating immediate impacts in the near term.
He says that companies will be likely looking at ‘dual sourcing’ initiatives, supplying the American market from within the US itself and using Irish operations for its trade around the rest of the globe.
But Meagher says that it would be “remiss” of Ireland, and the pharma industry here, to take a ‘wait and see’ approach, perhaps with the supposition that Trump’s policies will last for the remaining three-and-a-half years of his term, and no longer.
“It is all about the next investment. A lot of these drugs only have patent protection for a certain life or longevity. Ireland needs to maintain investment and to incentivise the right kind of activity in terms of attracting that innovation,” he says.
That means thinking outside the box in terms of tax credits for research and development, and improvements to infrastructure, particularly housing, Meagher says, areas in which we are notably lagging behind in terms of international competition.
But he argues that the situation is far from a doomsday scenario.
“It’s not as simple as that, it’s a whole range of business factors that need to be considered – it’s all about impacts for specific companies,” he says.
“It’s not all necessarily doom and gloom. Companies have had plenty of time to consider this. And pharma companies are long-term thinkers. Ireland has had just two issues with the FDA (the US food and drug administration, responsible for approving new drugs) in its history.
“The country has a strong reputation. These countries have invested significantly and Ireland is the owner of a lot of valuable intellectual property.”
But it’s certainly not a time to be complacent, Meagher argues.
“We have dropped down the competitiveness radar, and our competitors now aren’t in the EU – they’re in Switzerland, Singapore and the US itself. We need to be a top competitor for inward investment, and R&D and infrastructure will be critical. That is where Ireland needs to up its game.”
