By Padraic Halpin
DUBLIN (Reuters) -Ireland’s domestic economy could be up to 1.8% smaller than it otherwise would be by 2032 if permanent ‘tit-for-tat’ tariffs are introduced between the United States and European Union, a study co-authored by the finance ministry showed on Friday.
Describing the trade measures already announced by U.S. President Donald Trump’s administration as a “clear and significant risk to the world economy”, the paper said U.S. policy plans may potentially have a disproportionately large effect on Ireland’s small economy due to how highly integrated it is in the global system.
A significant proportion of Irish jobs, tax receipts and exports are directly dependent on a cluster of major U.S. multinational firms, the result of a low-tax business model that has boosted Irish economic growth for decades.
“We have to be very clear that as we move through the rest of this year and probably the years to come that the keeping of jobs, the protecting of the competitiveness of our economy will be our number one priority,” Finance Minister Paschal Donohoe told a news conference.
The finance ministry’s most recent forecasts from before Trump’s election estimated that modified domestic demand (MDD) – its preferred gauge of economic performance – would grow by around 2.9% a year until 2030.
Friday’s research, carried out with the Economic and Social Research Institute, estimated a 10% bilateral tariff on goods and services would push MDD 1.7% below that no-tariff baseline over five to seven years, or 1.8% lower in the case of a 25% tariff. A 25% tariff on goods alone would lead to a 1.2% fall.
In the more severe 25% tariff scenario, jobs growth would slow and be up to 3% lower than the no-tariff baseline, exports would be 5% lower and government debt 1.8% higher.
The researchers warned that while those impacts alone would cause falls in personal, indirect and corporation tax receipts, it was difficult to accurately forecast the additional risk to corporate tax because so much of it is paid by a small number of foreign firms who could move more production to the U.S.
U.S. Commerce Secretary Howard Lutnick, a critic of Irish policy, told the All-In podcast released on Thursday that the holding by U.S. technology and pharmaceutical firms of valuable intellectual property in Ireland for tax reasons “has to end”.
The paper separately estimated that if Washington imposed a 10% non-tariff barrier through measures such as legislation, which reduce trading links between the U.S. and other countries, it would lower Irish MDD by 1.6%.
(Reporting by Padraic Halpin in Dublin; Editing by Nia Williams and Hugh Lawson)
