In the latest chapter of the trade disputes launched by Donald Trump, the US president has accused Ireland of “stealing” pharma tax revenue. The country’s low corporate tax rates have attracted American heavyweights like Pfizer and Eli Lilly in recent years, but could changes to tax policy and trade tariffs persuade pharma multinationals to relocate back to the US?

 

US Pharma’s Irish Footprint

After imposing 25 percent tariffs on goods from Mexico and Canada and raising those on Chinese imports to 10 percent, US president Donald Trump has begun targeting Europe with blanketed tariffs on steel and aluminium imports. In the latest episode of the trade conflicts initiated by Trump, Ireland, a hub for many American multinational pharma companies, has come under fire.

In a recent White House press conference with Irish premier Micheál Martin, the American leader claimed that Ireland had “stolen” the American pharmaceutical industry and grabbed tax revenues that should have been paid in the US. “The Irish are smart,” Trump said, “you took our pharmaceutical companies.”

Beyond Trump’s wilder claims that the EU was set up “to take advantage of the United States,” Ireland, with its low corporate tax rates of just 12.5 percent, has attracted many US multinationals, including from Big Pharma, to its shores. American giant Pfizer is the biggest pharmaceutical company in the country, followed closely by Abbott and Johnson & Johnson.

In addition, the sector now drives Ireland’s EUR 72 billion (USD 78 billion) in annual exports to the US. A large part of these exports may fall under a practice known as “profit shifting,” where companies declare profits in Ireland due to intellectual property ownership rather than actual production.

 

Luring Big Pharma Back to the US

Trump’s accusations came after Washington implemented blanket tariffs on European steel and aluminium imports and the European Union (EU), in retaliation, threatened to impose counter tariffs on American goods. Ireland is particularly vulnerable to this escalating US-EU trade conflict. “Ireland is more exposed to tariffs because it exports proportionately more to the US. Pharmaceuticals and medical devices make the most of these exports,” Supriya Kapoor, associate professor of finance at Trinity College Dublin, told Euronews.

Most significantly, Ireland risks losing its tax advantage if US policy changes incentivise companies to relocate. Through tariffs and amendments to the 2018 Tax Cuts and Jobs Act, the Trump administration could lure companies back to the United States. “[The Tax Cuts and Jobs Act] is designed to try to incentivise a lot of that profit to be relocated back into the USA, and in some cases it was, but there’s a lot of loopholes in that legislation, which meant that it was much more profitable for the pharmaceutical sector, in particular, to move more profit into Ireland,” the professor of political economy at University College Dublin Aidan Regan told The Guardian.

According to Regan, under Trump the US could modify the tax code and encourage companies to return their earnings to the United States. If the US lowered its corporate tax, Ireland’s advantage as a hub for American pharma companies would be eliminated. Additionally, the new American government may look to bring companies back by lowering taxes on profits from IP activity.

With an estimated 75 percent of all of Ireland’s corporate tax being paid by US multinationals, warnings of its vulnerability to potential trade shifts are not new. Just last November, the then Irish taoiseach Simon Harris warned that the nation could lose as much as EUR 10 billion (USD 11 billion) in corporate taxes if just three American multinationals went back to the US.

 

Manufacturing: Solidly Anchored in Ireland

In addition to tax advantages, many pharma companies also have a strong manufacturing base in Ireland. Eli Lilly for one has invested USD 1.8 billion in its Kinsale and Limerick sites to step up the production of its obesity, diabetes, and Alzheimer’s treatments.

Relocating pharma manufacturing back to the US seems less likely. In a sector that employs 50,000 people, Oliver O’Connor, the chief executive of the pharma trade body the Irish Pharmaceutical Healthcare Association (IPHA) said that he was “confident” that strong workforce would remain in place over the next five years.

“Pharmaceutical manufacturing is a long-term investment and in Ireland we are fortunate to have attracted and retained many investments over 50 years through many different circumstances. We think this can continue and we are very supportive of Ireland’s Foreign Direct Investment Agency and the Government’s commitment in this respect,” the IPHA told Euractiv.

 

More Vulnerable Supply Chains

The trade conflict between the US and the EU is, however, likely to affect pharmaceutical supply chains. “People need to start to look at supply chains and see where they are exposed,” warned Simon McKeever, CEO of the Irish Exporters Association, in anticipation of the potential impact of tariffs.

A 1994 WTO agreement exempts medicines from tariffs to ensure global access. However, given Trump’s withdrawal from international agreements like the Paris Climate Accord, some fear he could pull out of the WTO’s pharmaceutical tariff exemption as well.