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.
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 a no-tariff baseline over the next five to seven years, or 1.8% lower in the case of a 25% tariff.
In the more severe 25% tariff scenario, employment would be 3% lower than the no-tariff baseline, exports 5% lower and government debt 1.8% higher.
The researchers warned that while those economic impacts alone would cause falls in personal, indirect and corporation tax receipts, it was difficult to accurately forecast the latter because so much of Ireland’s corporate tax is paid by a small number of foreign firms.
That could therefore be viewed as an additional risk to the public finances, in particular if the imposition of protectionist policies causes large multinationals to move production to the U.S.
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)
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