Here’s why Trump’s tariffs could hit Ireland’s pharma sector hardest

The Irish economy is particularly vulnerable to US tariffs against the EU, as it exports relatively more to the US compared to other EU economies.

US president Donald Trump has recently threatened to impose a 25% tariff on the EU, significantly escalating global trade tensions.

Although these potential tariffs would impact the whole of the EU, there are additional concerns about the effect on Ireland and Irish exports.

The Irish pharmaceutical industry is likely to be one of the hardest hit, in the case of US tariffs.

In 2024, Ireland exported €72.6 billion worth of goods to the US, which was an increase of €18.6bn from the previous year, according to the country’s Central Statistics Office (CSO).

Supriya Kapoor, associate professor of finance at Trinity College Dublin, told Euronews: “Relative to the other EU countries, Ireland is more exposed to tariffs because it exports proportionately more to the US. Pharmaceuticals and medical devices make the most of these exports.”

“And much of this pharmaceutical production is in Ireland for American companies such as Pfizer, Eli Lilly, Johnson and Johnson, to name a few.”

US tariffs on the EU could therefore have a significant impact on the Irish economy and gross domestic product (GDP) by making exports to the US more expensive, which could in turn contribute to lower demand.

Supply chain disruptions

Retaliatory tariffs from the EU could exacerbate supply chain issues for pharmaceutical firms.

The Irish Exporters Association has issued a warning to companies to start preparing for a possible trade war.

“People need to take this seriously. Any idea that Donald Trump is not going ahead with tariffs is a misconception. People need to start to look at supply chains and see where they are exposed,” Simon McKeever, the CEO of the Irish Exporters Association, told RTÉ.

Pharma products are generally supposed to be exempt from tariffs, according to a 1994 World Trade Organisation (WTO) agreement, devised to ensure better access to medicines globally.

However, Trump already has a history of pulling out of other key global agreements, such as the 2015 Paris Agreement on climate change.

Trump’s 25% tariffs on all imported goods from Mexico and Canada already went into effect on Tuesday, along with higher tariffs on Chinese imports.

Energy resources from Canada will have a lower 10% tariff.

Targeted tariffs could have a higher impact on Ireland

Targeted US tariffs on certain EU goods such as cars or pharmaceutical products could potentially affect the EU and Irish economy more than blanket tariffs, according to Oxford Economics.

The company said: “Our industry-level modelling suggests that the pharmaceutical and high-tech industries would be the most affected. Similarly, smaller, less diversified economies are more exposed. We estimate that Ireland and Central and Eastern European (CEE) economies will experience the largest hit.”

“Opting for targeted tariffs instead of blanket tariffs could exacerbate the impact on some EU industries. We simulated a scenario with 25% tariffs only on metals, cars, and pharmaceuticals. We found similar results to our blanket tariffs scenario but with stronger effects for Ireland and Denmark due to pharma, and for Germany and Slovakia due to automotive.”

Paying for intellectual property

Many US pharmaceutical companies set up manufacturing facilities in Ireland due to its low corporate tax rate, although they are linked to headquarters in the US.

The Irish firms then pay a royalty fee to US parent companies, which allows them to use formulas to make products.

This partly explains why Ireland imports far more services from the US than it exports, as is not the case with goods.

Trump’s 25% tariff threat currently relates to goods, although it’s possible these set-ups could be targeted by the new administration.