President Donald Trump’s election caused quite a few jitters in Irish industrial policy circles.
His “America First” policy and pledges to reduce US corporation tax to bring US multinationals home, threatens a critical element of our economic policy. However, in his first three months, there is little evidence that Irish-based US multinationals and Irish policy makers need to be particularly worried.
This doesn’t mean that there is nothing to worry about from a Trump presidency. The risks are not from a reduction in US tax rates, but from the likely slowdown in US and global growth from President Trump’s mishandling of the economy and the persistent threat and uncertainty that will arise from his erratic actions and u-turns.
In relation to tax, the Trump administration has championed lower taxes for companies to encourage multinationals to remain or return to the US. This is a simplistic view of the reasons why US firms operate overseas. There are many reasons, other than tax, such as market access, sourcing knowledge, and cost advantages for off-shoring by US companies.
In addition, even where tax is an important consideration, the issue for US firms in Ireland is not the difference in headline corporation tax rates.
It is necessary to note that US firms in Ireland pay the full amount of tax for which they are liable in Ireland. The low effective rates of corporation tax that US firms achieve are not due to differences in the rates of tax in Ireland and the US, but in different rules on residency.
Irish rules say that a company is tax resident, and liable for tax, in the country in which its operations are managed and controlled. The US rules say that a company is resident where it is incorporated. So, a branch of a multinational US company may be incorporated in Ireland, thus avoiding US tax, but managed and controlled in the US, thus avoiding Irish tax. This makes the company effectively stateless for tax purposes.
Eventually, US tax will be paid on repatriated profits of US multinationals and they currently have large off-shore cash reserves.
In previous years there have been one-off preferential tax rates to enable companies to bring that cash home, and I suspect a similar approach is likely from the Trump administration.
They will spin this as a sensible windfall gain for the US economy, but it will be nothing of the sort. Unless the US administration intends to change its rules on tax residency for companies, which would be a very significant move and highly unlikely, Irish industrial policy has little to worry about from the US tax changes.
President Trump’s packing of his economic team with former Goldman Sachs employees and other insiders has further decreased the odds of substantial tax code changes.
Far from draining the swamp, he has ensured economic and treasury approaches are likely to remain staunchly in favour of big business.
Large companies, including multinational corporations, will continue to have the ear of political power. In addition, the US economy is not in the mess that President Trump claimed when he came into office.
President Barack Obama left the economic fundamentals, growth, employment, and productivity, in a much stronger position than he found them.
This may reduce the urgency with which President Trump needs to do something on tax and trade. This does not mean there are no risks to the Irish economy and Irish-based multinationals from a Trump presidency.
What is clear from the first 100 days is that President Trump is no different from presidential candidate Trump. He is tactical, rather than strategic.
There is little evidence of a strategic objective in any aspect of government, from economic policy to foreign policy, and from health to education.
Being tactical and opportunistic are not such bad traits during an election campaign. However, it is disastrous once elected.
President Trump is acting as if he remains on the campaign trail, and is fixated on ratings and his approval standing.
He seems very willing to jettison election promises when opportunities for short-term, tactical gains arise. This was most recently seen in relation to his attacks on Syria, his attitude to NATO and China’s “currency manipulation”, and the US Import-Export Bank.
Where a president is fixated on ratings and approval rather than from any well-considered or strategic approach to policy, businesses and policy makers cannot be complacent.
Should President Trump decide one day that Ireland is no longer a “faithful partner” and “loyal friend”, perhaps as a result of IDA Ireland in attracting more US multinationals, then all bets are off.
Dr Declan Jordan is senior lecturer in economics at Cork University Business School.
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