ESRI says Trump policies present considerable risk for Ireland
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Proposed policy changes by the incoming Donald Trump administration in the US bring “considerable downside risks” for the Irish economy as they could severely impact trade, foreign direct investment (FDI), and public finances, the Economic and Social Research Institute (ESRI) has said.
As part of his economic policies, Mr Trump has promised broad tariffs and changes to tax policy to incentivise companies to return manufacturing to the US. This could have significant impacts for Ireland as it has a significant trading partnership with the US.
In its latest quarterly economic commentary, the ESRI forecasts strong growth in the Irish economy next year but associate research professor Conor O’Toole said the international picture for 2025 “is more clouded” due to potential disruption from the US.
Mr O’Toole said that if the Trump administration fulfils its promises to levy broad tariffs on US imports, it could subdue overall world trade which could have direct and indirect consequences for Ireland. A significant proportion of Ireland’s trade is exported directly to the US. In the first nine months of this year, 31.2% of Ireland’s merchandise exports went to the US.
For pharmaceutical products, this share was over 38% in the same period.
“Given this reliance on the US as a destination market, and the importance of pharma to our exports, any disruption in these trade flows would have notable economic consequences, as well as an impact on the public finances through lower corporation taxation receipts,” the ESRI said.
“The prospect of a global trade war, given the Trump administration’s proposals on tariffs, the impact of taxation policy on intellectual property location, allied to the possible targeting of the pharmaceutical sector based in Ireland, could have particular implications for both activity levels in the domestic economy and for the Exchequer receipts,” the ESRI said.
“If these impacts materialise more quickly than expected, particularly those on the public finances, some aspects of planned future expenditure levels outlined in Budget 2025 may have to be revised in the new year.”
Mr O’Toole added that FDI flows into Ireland could also slow as the US could seek to reshore capital. While FDI could slow, the ESRI pointed out that many US multinationals have already made significant investments in Ireland for a variety of reasons including taxation and access to the EU.
“These investments are also likely to have long payback periods beyond the four years of the incoming Trump administration,” the ESRI said. It forecasts that Ireland’s gross domestic product (GDP) will contract by 1.1% this year before recovering to 4.5% next year driven by higher exports and investments.
Modified domestic demand — the preferred measure of underlying Irish economic performance — is expected to grow by 3.2% this year and by 4.1% next year.
The positive outturn is driven by increases in real incomes, strong labour demand, and higher housing investment in 2025.
Employment will continue to increase, exceeding 2.8m in 2025.