IDA Ireland and Tánaiste Leo Varadkar are looking for sources of foreign investment as the technology sector falters and they believe life sciences and pharmaceuticals could fill the gap. That might not be such a good idea as Washington and Brussels are once again at odds over trade subsidies.
It’s been a little over two years since the US and European Union declared peace in a trade war over tariffs on steel and aluminum that has embroiled Kerrygold Butter and Bailey’s Irish Cream in a series of escalations.
But here we are again, seemingly on the brink of another transatlantic row, this time over $400 billion in US government tax credits aimed at encouraging electric vehicles and greening American utilities through renewable energy.
The problem with the new US law called the Inflation Reduction Act – at least from a European perspective – is that these loans will all go to American companies or companies with plants in America that employ American workers. According to Brussels and European capitals, this is a subsidy that discriminates against local companies.
It’s a dispute that could once again involve Irish companies and trigger another scrutiny in Washington of American multinationals based here, particularly pharmaceuticals.
It’s the accounting and tax mechanisms behind moving US intellectual property here that have turned Ireland’s economy, in terms of gross domestic product, into a €420 billion gorilla.
By this measure, the size of the economy has doubled since 2013. If you take out these phantom financial flows, the economy has grown, but it’s a more modest €230 billion in terms of GNI*.
Exports of goods to the USA increased from €21.4 billion in 2011 to €52.5 billion in 2021
In addition to financial flows, Ireland has been a big winner from US job relocation, particularly in the pharmaceutical sector. Merchandise exports to the US have grown from €21.4 billion to €52.5 billion between 2011 and 2021, growing from less than 10 percent of the bloc’s total to more than 13 percent.
The goods trade surplus with the US is almost 35 billion euros – that is almost a fifth of the total goods surplus of the 27 member states of the European Union.
That’s all flattering corporate tax revenue here, which could reach €23 billion this year.
Of course, America’s job is to stop the leaks caused by its tax code, but it’s not just the US that is losing. Drugs are also a particularly sensitive item, as Senate studies have shown.
While you can understand that the production of labor-intensive goods – like clothing – is shifting to countries with low labor costs, it makes much less sense that 41 billion euros of chemicals, i.e. medicines, were exported to the US from Ireland last year .
Add in the tax losses for the US Treasury caused by financial engineering and also throw into the budget the costs incurred by drug spending through Medicare and it’s a hot topic.
At a time when tech multinationals are laying off Irish employees, it may have felt like a triumph for IDA to recently announce that Pfizer plans to spend more than 1.2 billion to 5,500.
This followed Abbott Laboratories’ plans in August to hire 1,000 more employees in a $450 million investment also announced by IDA.
These are the kinds of announcements that are also being noticed in Washington.
Ron Wyden, the Democrat who heads the Senate Treasury Committee, is already asking Abbott how its tax rates are “favorably affected” by doing business in Ireland, Malta and elsewhere.
An investigation by Christian Aid last year found that Abbott used some type of corporate tax structure — which the government says the government scrapped three years ago — to avoid paying $500 million in corporate taxes. The company states that it pays statutory taxes where it operates.
The Senate Finance Committee is already asking Abbott how its tax rates are “favorably affected” by operations in Ireland, Malta and other countries
Merck is also under scrutiny by Wyden’s committee as it structures sales of the $17 billion cancer drug Keytruda, which is manufactured here in Ireland while the patents are held in the Netherlands – another EU country co-owning alongside Ireland frequently on lists of European tax havens and Luxembourg.
It’s not just the US that’s losing money – Italy has funneled billions in profits to the Netherlands, and a watered-down tax deal recently agreed by EU nations under the auspices of the Organization for Economic Co-operation and Development will do little to change that, which of course explains Ireland’s rapid switch to support of moving.
There may have been a change at the top and Donald Trump’s hard-line gung-ho mantra “trade wars are good and easy to win” is gone, but make no mistake, Joe Biden’s presidency is built on a US industrial policy.
While it’s true that Biden has ended the 17-year trade dispute between Boeing and Airbus, he’s also extended many of the Trump-era tariffs, kept those targeted by his predecessor against China on the books, and imposed tougher export restrictions.
The 2021 “peace deal” with the EU over steel and aluminum replaced tariffs with quotas — hardly a win for free trade — and this September, Biden signed into law a $53 billion semiconductor subsidy program.
The president welcomed the signing of his Inflation Reduction Act, in language that would not have been out of place at one of his predecessor’s rallies: “We will build a future here in the United States of America with American workers – the future, with American companies, with in American made products.”
The US and Europe are also at odds over the EU’s carbon border tax, which levies import tariffs based on their carbon emissions. Washington says these measures are discriminatory.
Europe as a whole has a lot more to lose than the US and is also under pressure from exports to China. From 2011 to 2021, the EU-US trade surplus in goods more than doubled to €167 billion.
Biden may be the most Irish President since JFK and a much smoother operator than Trump, but for all his smiles and “I’m Irish” snap at the BBC, what really matters is “the economy, dumbass”.
https://www.independent.ie/business/world/ireland-needs-to-worry-about-a-growing-trade-rift-between-us-and-europe-as-it-targets-further-pharma-fdi-42220150.html Ireland has to worry about a growing trade gap between the US and Europe as it seeks more pharma FDI