Donohoe refuses to rule out recession as he reveals impact of tariffs on Ireland

By Cate McCurry and Gráinne Ní Aodha, PA

The Minister for Finance has laid bare the potential effect of US tariffs on the Irish economy, describing the looming announcement as a “significant day in the history of the world”.

Paschal Donohoe said Ireland is facing a possible slump in employment growth and job creation, a decline in tax revenue, possible tax income increases, an impact on some 80,000 current jobs – and he refused to rule out a recession.

Ireland and European leaders are braced for US president Donald Trump’s “Liberation Day” for the US economy, when he is expected to announce a range of tariffs on imports from other countries.

He is expected to target EU countries, including Ireland, with tariffs of about 20 per cent on imports into the US.

 

Tariffs on all Irish exports will lead to higher costs, particularly in the pharma sector.

Speaking in Dublin on Tuesday, the Fine Gael Minister said: “I know it’s difficult to make the case for progress on the eve of such a significant day in the history of the world, but if I was to make the case for things that are, despite the challenges that are going to be imposed on us, that are still positive, I’d point to three things.”

He pointed to record levels of employment across the EU, and a growing appreciation of “predictability” by companies across the world.

He said the EU’s response to the announcement by the US will be “thought-out, predictable and communicated”.

Mr Donohoe also refused to rule out a recession, saying it is “difficult to exactly identify what could be the scenario we’re facing into” after Wednesday.

“All I, in truth, can say at the moment, is on the basis of what president Trump has already said, I do believe it is very likely that we will experience an economic challenge in the next number of years,” he said.

“On the basis of what I currently know, I believe it’s most likely that will lead to a lower level of economic growth, with a risk in relation to how many new jobs could be created or some lost, and that will happen over the next two to four years.

“Once we know exactly what is going to happen, I think at that point I’ll be better able to answer what’s the scenario we are conducting.”

Government Ministers have been briefed on the effect on employment levels, but as the details of the tariffs are not yet clear, Mr Donohoe said the best forecast he can make is one of lower job creation and unemployment levels slowly down or slightly rising.

Mr Donohoe also described a possible decline in tax revenue, which will take place over a number of years.

 

“The exact magnitude of that change in tax revenue, we hope will be in a position to better model once the scale and duration of tariffs become clear,” he added.

“At the moment we’re not clear on that, that will become clearer at least beginning tomorrow.

“But I should emphasise, we are confronting all of this with our public finances in surplus, which will be a significant help in dealing with the costs that may be coming our way due to a decline in tax revenue.”

He said the Government will also “consider” increasing income tax over the coming years, but the decision will be based on what the tariffs will be, how long they will be in place, and the EU’s response.

The Tánaiste has also warned that the export of pharmaceutical products from Ireland to the US could reduce by about half in the face of US tariffs.

Simon Harris said that over a five-year period there could be a “very significant” reduction of pharmaceutical products, but he does not want to be in the space of the EU applying 20 per cent tariffs.

Speaking in Dublin, Mr Harris said the trade relationship between the EU and the US is worth €1.6 trillion every year.

Mr Harris set out to Cabinet on Tuesday the potential economic impact on Ireland.

About 45,000 people are employed in Ireland’s pharmaceutical companies, while some €58 billion in pharma and chemicals is exported from Ireland to the US every year.

Mr Harris said Ireland and the EU are facing one of the “biggest economic challenges”, which will have a generational impact.

 

“As soon as tomorrow, we’re highly likely to see a series of announcements from President Donald Trump in relation to trade and tariffs,” Mr Harris said.

“I think this will seek to fundamentally alter the trade relationship between the European Union and the United States of America, and I think it is regrettable, in advance of even seeing the detail, because tariffs are bad for consumers.

“They push up the cost of doing business, they push up the cost of goods, and we have built successful economies on both sides of the Atlantic on the basis of trading in goods and services.

“I think it is really important in the days ahead though, that the response from Ireland and the European Union is calm, is measured and is strategic.

“Crucially, though, this has to be about getting to a point of negotiation.

“Every disagreement ultimately has to end in an agreement, has to end with people getting around the table, and I certainly hope that what the EU response will do is allow time for meaningful engagement to find a way forward that is good for Europe, good for Ireland and good for the United States.

“Pharma companies and companies are here because they do very well. In fact, about 60 per cent of what they’re exporting is going into the European Union. In other words, they need a presence in Europe.

“We have a significant presence of pharma companies here. Of that, there’s no doubt, employing around 45,000 people.

“But we’re not completely isolated in relation to this, and that’s why, over the last number of days and again, today, I’ve been talking to colleagues in the European Union, who also have large pharma industries.”

Taoiseach Micheál Martin said Ireland and the EU must try to avoid “worst case scenarios”.

“What is clear is there will be, even after negotiation, there will be some level of tariffs still in place. The issue now, because it’s then – how high?

“Then it’s a matter for the Irish economy and the European economy to adapt to that, diversify our markets, look at our competitiveness, both within Ireland and within the European Union, there are a lot of measures we can take, but fundamentally, the old order is changing in terms of the economic model.”

He added: “I think the entire tariff initiative is, as I said, it would be damaging to the entire world economy, to the US economy, in my view, and to the European economy and to Ireland.

“So we’ve got to try and mitigate it as much as we possibly can, limit the damage and avoid worst case scenarios.

“There will be a lot of consultation within the European Union on this issue, to endeavour to get to a strategic response that doesn’t bring more damage.

“Economists are fairly strongly of the view that it needs a calm, collective sort of measured response to make sure we don’t feel damage to ourselves in the process.”

Social Democrats TD Sinead Gibney said “we do not want to see a tit for tat war”.

“This is being compared by some to Brexit but we appreciate that this is much more complex.

“It’s much more sudden than Brexit but also it has all EU member states affected by it, whereas Ireland was obviously uniquely impacted by the economic fallout from Brexit. So it’s really important that we use that influence as best we can.”