Quanto è preoccupato l’industria farmaceutica dell’Irlanda per le tariffe di Trump?

TLDR

Very

There is significant capital and human resource investment in Ireland.

Trump can’t force a pharma to move to the US if they don’t have the chemists and education there within a concentrated area to facilitate it.

Ireland nurtured this industry through an amazing education sector, FDI campaigns, R&D tax incentives, CT tax rates. It took decades, not a 4 year presidential term.


So, to be fair, yes it is worrying. It would be remiss to ignore the threat of Trump and co.

That said, like many of the other threats, I expect this will largely blow over.

The Pharma companies didn’t just come here for shits and giggle. They’ve come because it’s a very favorable tax haven on the English speaking western edge between the US and the EU. All of that is great, but the concentration of such a high volume of high quality, qualified Pharma staff is even better.

These companies like Pfizer, Abbvie, Eli Lilly have spent decades in some cases investing millions and millions in their Irish homes… and it’s been a good investment! They’ve grown and succeeded as well as they could have hoped.

This latest threat from Trump is one of many – therefore it’s likely to be out of focus soon enough, and it will serve as little more than lip service to appease Americans, and a warning to these Pharmas. The reality is, the cost of bringing those companies back to the US (completely) would be an enormous, unplanned expense that would take years to manifest. Even then, it would be incredibly difficult to find the thousands of staff members at the right level required.

Ohh, and those staff would all have to be paid double what they’re paid here.

It’s likely that these Pharma companies will appease Trump by saying they are ‘conducting an assessment on growing their footprint in the US’.. which will keep the administration sweet… but in reality that assessment will last the duration of this term and the answer will be: no.

Also worth noting: these pharma execs will be *furious* about these tariffs hitting them where they hurt, and entirely unnecessarily. They won’t like that and he’ll know it. That could hurt him in 4 years.

So, TLDR, it’s not good news, but I think it will be largely fine.

Anytime regulations change the corps are going to put there money where it’s cheapest. No the people won’t loose their jobs right away but when the program there working on finishes up and the next big thing has already started back in the states or wherever then you will see the redundancies come in dribs and drabs till the overall workforce is half what it is now. No big bang but the end result is the same only without the bad press for the corps. They still want to sell here after all

A lot of people commenting seem to believe the orangeman’s only going to be in charge for 4 years. That is far from certain.

I think the impact will not come where most folk expect initially but will be much wider.

Up until now the game has been to capture most of the profit the company makes globally in Ireland where it is taxed at 12.5%, rather than the US or elsewhere.

So if it cost €40 to make a tablet in Ireland, and it sells for €100, with the right functions, assets and risks in Ireland (manufacturing, IP and decision makers) you might get to attribute say €50 of the total €60 profit to Ireland and €10 to the US for limited risk distribution activities.

So Ireland would be selling to the US for €90 (the transfer price) and the US to the consumer for €100. The €50 profit in Ireland initially gets taxed at 12.5% in Ireland which is better than the historic effective corporate tax rates in the US of 40% pre Trump I and ~26% now.

So your net saving today in this example is 50* (26%-12.5%) = 6.75 Tariffs ruin this as the US distribution subsidiary now needs to pay 25% of the transfer price of (say) 90 to the US on import, so a new cost of 22.5, making the tax saving on the overall structure pointless unless you can jack up the price enough for the end user to cover the new cost.

Which with Pharma may be unlikely as they’re probably already charging at or close to their revenue maximising number already.

So if you can’t rebuild a factory straight away or can’t pass much more cost to the consumer what can you do?

If seems the solution has to be lower the transfer price and try flip the model so the cost on entry to the US from Ireland is lower. E.g. if Ireland sell to the US at €50 the tariff is now only 25% of 50 so €12.5. €10 lower than the original tariff figure of €22.5. You also lose some tax benefit (90-50)=40 * (26%-12.5%) = 5.4. So net you are still down 12.5 + 5.4 =17.9. 12.5 lower operating profit and 5.4 higher tax bill.

You might be able to mitigate the 5.4 a bit more if you have other tax planning options to erode higher US profit base (e.g. tax write offs for investing in new plant in the US). And you try get back what you can on the 12.5 operating loss either from price increases, or by cutting costs out of your structure.

Not as good as no tariffs but possibly doable in a short time frame of 1/2 months if you throw money at advisers.

So if you assume you can execute this structure quickly who loses out first. The Irish Corporate tax from Pharma essentially disappears within 2/3 months but isn’t seen until returns are filed after.

So the cracks show in the govt finances and start immediately but won’t be spotted for a while. Then grants for everything and all the extra spending built on the CT receipts is going to have to get trimmed quickly or the deficit rockets.

Probably at next years budget. So the recession lands first in the government sector and their ability to provide hand outs to cushion it will not be there. Classic pro cyclical fuck up again.

Also you can’t just credibly say Ireland was entitled to a transfer price of 90 today and only 50 tomorrow (which you need to if you want to minimise tariffs before you can build plant in the US). You have to change functions assets or risks. If you don’t you open the door to the us to argue more of the money should have been there in the first place.

Most folk will hope Trump is gone, and his madness with him after 4 years, so companies will be reluctant to move IP back to the US. They’d find it hard to get it back out again in future if tariffs are ever repealed. And most will hope the madness will end so not moving IP now.

Contractually you can assign risks between the parties and allow the US carry more and so be entitled to a greater share of the reward in the overall value chain. But you also have to move the management of those risks. So the first jobs to go will be the key senior decision maker type roles. Presumably we’ll see a lot of these folk either replaced in the US or seconded back there initially (if they agree to go).

This costs their high earning / spending jobs here. But also a major chunk of Irelands income tax base as these folk are typically very well paid higher rate payers.

Next up comes the natural attrition of the teams that previously reported to these folk. Either these roles also slowly migrate back to the US (as the decision maker wants someone in the office) or get replaced in lower cost countries.

No longer any justification for hiring highly paid mid manager types in Dublin or remote in Ireland when you can get someone cheaper else where to offset some of your tariff costs.

Frontline production operatives are probably safe enough for existing lines. For now. But eventually it’ll be like the original low cost of production factories in the late 90s and 2000s that moved to cheaper European and foreign locations. Because if you have a lower transfer price and limited tax saving why not just manufacture India given the wage differential and import to the US at a lower price for lower tariffs.

There’ll be limited incentive to award production of new drugs to an Irish site. But as patents for existing drugs roll off these jobs go too.

Another short term hit to govt finances will be the fact that tariffs will lower profits and growth generally. US stock market is highly overvalued and will crash badly. This will mean that the value of stock received by the Irish employees in all US multinationals that keep their jobs will be much lower for a few years, further exacerbating the govt finance crunch. Govt will have to stall capital projects first.

This will free up some construction staff for houses at least, but the housing market will come under pressure as folk start losing their jobs and are forced to sell. And govt won’t have the ability to borrow and fund construction as deficit will be hammered. Domestic Irish jobs can’t compete with multinational salaries to the same extent so there’ll be less first time buyers able to afford stretched prices and the whole house of cards will crumble from there.

As well, all the post pandemic first time buyers in decent jobs in tech or Pharma who stretched and haven’t seen recession before.

Meanwhile the US housing market crash has started and we are about 6 months or so from the next lehmans type moment.

Capital is already, and will become more, expensive, over the long term. US long term Interest rates will rise as bond investors balk at govt deficits and some and more of the tech and biotech start ups will run out of road.

And once jobs start going the knock on impact will snowball. It’ll be interesting to see to see if migration reverses when jobs disappear and the govt is forced to cut social welfare assistance. This happened in 2007 when a lot of houses that were rented to European migrants ended up empty. However the folk who’ve arrived here with a slightly more difficult journey than a Ryanair flight might not stay.

But the next main jobs boom will be arms factories in Europe so some could head that way too.

Our business has several team working on the potential impacts of tarrifs to the business.

Nobody is talking about moving plants back to the USA, it’s simply not feasible due to costs and labour issues. If plants are moved in response to this clusterfuck. They will go to countries not on Trumps shit list with lower costs than Ireland and good NPI deals.

Biggest impact initially will be on the pipeline of new projects headed to Ireland, they may be redirected elsewhere to allow the company to keep their head down and out ofMAGAs sight to weather the storm.

What is the implications to Non-US pharma companies? Has this been discussed anywhere?

Thinking about it logically, there will likely be a 4 year halt in any investment that’s not already in the pipeline. If Trump manages to come back for another term or Vance comes back for one or two terms that will likely extend.

Create a shortage of Viagra…..that should focus the minds over there to come to some resolution fairly quickly 😉

They can build factories in the US guys, what’s realistically stopping them? If they can’t do business from Ireland anymore they’ll move simple as that. Lots of the highly skilled Irish people in pharma will be brought to the US to get things up and running.