There are two schools of thought as to why Irish pharmaceutical exports escaped the US tariff guillotine – at least for now.
First, imposing higher drug costs on the US healthcare system, the biggest purchaser of these products, would have serious ramifications for the cost of healthcare in the US, one that perhaps Donald Trump’s team in Washington wants to avoid at least for now, while the fallout from the administration’s wider trade policy continues.
Another explanation centres on the possibility that the US government might use tax instead of tariffs as means of leverage to get US pharma companies back home.
US manufacturing has been gutted by two decades of globalisation. We can argue about the cause of this. Trump thinks the US has been taken for a ride. The truth is more nuanced.
Either way billions worth of pharma manufacturing has effectively been offshored to Ireland and other places, taking advantage of lax licensing laws in the US and lower tax rates abroad. Ireland has been perhaps the main beneficiary.
The so-called Gilti (global intangible low-taxed income) tax rate – brought in by Trump in 2017 to target income from intellectual property such as copyrights, licences, patents and trademarks – was aimed at tackling this.
It spectacularly backfired, triggering a further offshoring of US assets and another surge in tax receipts for the Irish exchequer.
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The current regime may try to reconfigure this Gilti tax measure to achieve its desired aim, the re-onshoring of pharma manufacturing. Ironically this was also on the to-do list of the previous Biden government, so it may get bipartisan support unlike the tariffs.
The Irish Government and IDA Ireland have always been more fearful of a big change in the US tax code.
Of course the gargantuan market fallout from tariffs may prompt Washington to pause whatever plans it has for the pharma and semiconductor sectors (another to escape tariffs).
With markets globally tanking and Wall Street fast souring on Trump’s trade agenda, another assault on either could be a bridge too far.
