Yes, it has happened and it is reality. It is president Donald Trump! The world is left stunned and uncertain with what lies ahead. The American people have voted for change! But what kind of change will this bring?
Financial Markets
Ireland, now more exposed to the squalls of the international economy than anywhere and more connected to the US through bonds of commerce, sentiment and blood, now faces the second dramatic transformation of one of its closest allies in a few months.
The immediate effects will cause a cascade of crashing financial markets. Heavy losses in dollar stocks are expected, how long it will take the markets to settle before the longer-term effects become clearer is impossible to say?
Corporation Tax
US companies pay billions of euros in corporation tax here. The Government spends that money on public services and many other things. The Trump administration are indicating they want to lower the corporate tax rate in the US from 35% to 15%.
Big companies will still want global operations bases. But a significant cut in US corporation tax would limit one of Ireland’s key selling points – our 12.5 per cent tax rate on corporate profits. Our marketing to attract foreign direct investment ( FDI ) in future is going to have to focus on other areas. Also, trade restrictions and a “jobs at home” presidency, together with the promised tax changes, may well have a significant impact on the flow of FDI out of the US.
Economic Forecasts
Just like Brexit, it will take time for the likely impact of this on our economic growth to become clear. But the uncertainty about the direction of the world’s largest economy and risks of international trade tensions are a significant worry heading into 2017, not only for Ireland but for the world economy. Economic growth forecasts, already cut in the wake of Brexit, may well have to be trimmed again for 2017 if there is a hit to international confidence, with implications for jobs, incomes and the Government’s finances.
A falling US dollar
If this trend is sustained, it will not help Ireland. It will make Ireland a more expensive destination for US tourists, at the same time as the UK market is hit by a fall in sterling. It may also affect Irish Business who export, the US accounts for over 15 per cent of the total exports, and so a falling dollar and uncertain outlook is not good news.
Trade Policies & Export
Trump has promised to implement sweeping changes in trade and tax policy, both vital areas of interest for Ireland, as a small economy reliant on inward investment and growing exports. These trade threats, suggesting a move away from the multilateral process of trade negotiations and from regional trade deals, may result in trade wars as other countries impose tariffs and other trade barriers in return, and potentially a move to a new protectionist era. Clearly any move to a more inwardly looking US could affect Irish export growth in the years ahead to one of our key markets.
The Trump presidency brings a whole new bag of uncertainties to the economic outlook. It remains to be seen how “bumpy” the ride will be?
For information on how to strategically plan and put a plan in place for your business to remain competitive contact Paul Redmond on 053 9170507 or email paul@rda.ie