The tariff war is coming for Irish workers

The government should introduce specifically tailored global market diversification grants for Irish exporting companies.

The frontloading of exports by the multinational sector in Ireland to the USA in the spring, ahead of the tariff deal in July, and which hit the zenith value of €25.7bn in March, has now registered a dramatic drop to €4.4bn in June.

This was to be expected. But, this could well be the turning point towards more adverse economic conditions and an almost certain downturn in 2026.

The Central Bank is currently modelling the effects of the EU-US trade deal. In the meantime, the up-to-date evidence is a cause for concern for the Irish economy going forward.

In May, the Central Bank had compared two tariff scenarios: a baseline scenario assumed 20% tariffs from Q3 2025, with no EU retaliation, and with Pharma and ICT not included. The adverse scenario assumed the same 20% tariffs in Q3, but with symmetric EU retaliation, and with all goods included.

In the end, the July 27 EU-US trade deal includes 15% tariffs on all products, but without any EU retaliation, and all goods are included. The Central Bank’s adverse scenario, which includes 20% tariffs on Pharma and ICT, still looks closer to what will unfold in the short term.

In this scenario, forecasted GDP growth would be 8.5% in 2025, sharply dropping to 1.7% in 2026. Perhaps more significantly, the Modified Domestic Demand (MDD) forecast would be down to 0.85% in 2025, hovering at only 1.0% in 2026.

MDD measures the purchasing power in the domestic economy. However, this is impacted by wages paid by multinationals in Ireland, many of their investment projects, and linkages to Irish companies, with knock-on effects to consumer spending. Irish workers, as well as Irish-owned businesses, connected via contracts and supply chains to the multinational sector, are increasingly at risk.

Despite the very high employment rate of 74.7% reported by the CSO in Q1 2025, the May Central Bank report noted a slowing of employment creation and job postings in the three years to January 2025. In July, CSO seasonally adjusted unemployment rose to 4.9% from 4.6% in June.

Uncertainty

The growing uncertainty of Irish businesses, as reported in a Grant Thornton report at the end of June before the tariff deal, is no doubt still present: Grant Thornton reported a drop of 25% in predicted profitability by mid-market businesses for the coming 12 months.

The new era of tariffs is a source of concern for the Irish public finances, too. Last year, the Revenue Commissioners reported that, excluding the Apple taxes, foreign-owned multinationals paid €24.8bn in corporation tax, 88% of the CT total. The Central Bank has forecasted €15.7bn ‘excess corporation tax’ from the multinational sector for 2025 and €17bn for 2026. This revenue is more vulnerable to economic shocks such as tariffs, and could be in peril, negatively impacting the public finances, with one third of tax revenue now coming from corporation tax.

In light of these developments, the government should not sit on its hands and adopt a wait-and-see approach. It needs to take action now.

Educational attainment has been the dominant driver of economic growth in Ireland from 1995-2023. The government needs to ramp up its emphasis on developing human capital, and particularly aligning education and training programmes aligned to actual labour market opportunities.

It needs to hold to its spending plans on the green transition, reduced carbonisation, and improvements in infrastructure, while driving housing completions higher. Keeping the domestic economy strong is paramount in the tariff era. The domestic economy will also need extra government spending, given demographic changes.

The government will certainly need to generate more tax revenue, notwithstanding any annual drawdowns from the Future Ireland Fund up to 2040, when the fund is projected to be at €100bn. Equitable and progressive taxes to widen the tax base are critically important and need to be introduced as soon as possible.

The current tariff environment presents an urgent opportunity to reduce our over-reliance on the multinational sector. The government should introduce specifically tailored global market diversification grants for Irish exporting companies.

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This month’s CSO trade figures show a hopeful sign, in that Irish exports to the ‘rest of the world’, which excludes the UK, EU and US, rose from €3.26bn in 2024 to €3.58bn in 2025, up 10%. The government needs to develop an action plan, to drive this export diversification success further.

Finally, a Task Force to monitor government capital investment projects, to ensure efficiency, on-time delivery, and value for money in public spending, is now more vital than ever.

Dr Tom O’Connor is an Economist and former Head of Department at Munster Technological University