Ireland’s high-beta economy and the incoming ‘Trump effect’

Ireland’s high beta economy makes us the EU member state most vulnerable to incoming US President Donald Trump’s planned import tariffs, writes Cormac Lucey  

T he essential goal of financial management is for a firm to maximise its valuation while minimising risk as measured by volatility in that valuation. The measure of risk used by the Capital Asset Pricing Model (CAPM) is beta. This measures the anticipated rise or fall of an individual stock price in proportion to the movements of the stock market. 

A stock with a high beta is expected to undergo large share price moves relative to market moves. 

If one were to view the economy of the Republic of Ireland as the equivalent of a stock, one might describe it as a high-beta economy. 

Right now, it is exposed to several factors that significantly increase its riskiness relative to its economic neighbours. 

Donald Trump and his declared policy of getting US multinationals to repatriate jobs back to the US represents the single biggest economic danger currently facing the Republic. 

This is because Ireland’s success in attracting such jobs has laid the foundations for its current economic success. 

It has long been understood that the multinational corporation (MNC) sector pays a disproportionate share of corporation tax in Ireland and a new report from the Revenue Commissioners confirms this. 

According to Corporation Tax: 2023 Payments and 2022 Returns, the foreign MNC sector paid 87 percent of all corporation tax in Ireland in 2022. 

According to an IDA Ireland report published in the same year, a total of 301,475 people were working for foreign multinationals in the country at that time. 

According to the Central Statistics Office, meanwhile, of the 2,121,300 people working across the entire economy in 2022 – just 14.2 percent were employed by the MNC sector.

Yet, thanks to the highly progressive nature of our income tax system and the much higher wages paid by our MNC sector, this cohort paid 54.6 percent of total income tax. 
The cherry on the cake is that, according to Revenue, the MNC sector also accounted for more than half of all VAT payments (53.8 percent).

A Danish employers’ study based on a model devised by the Oxford Economics business group stated that Ireland would be the EU member state hardest hit by a full imposition of Trump tariffs, with the potential loss of 30,000 jobs and GDP in 2027 at four percent below what it would otherwise be. This would represent a huge hit to the economy and to the public finances. 

The new government’s honeymoon might not last very long.

It’s also hard to imagine that Ireland can escape the attention of the incoming Trump administration when it was the focus of so much pre-election scrutiny. 

While campaigning, Trump promised blanket levies of 20 percent on all US imports, as well as tariffs of 60 percent on those from China, suggesting his second-term policies could be even more disruptive to global trade than those of his first administration.

The incoming Trump administration knows for sure that it will have two years, at least, while it enjoys a congressional majority. Any politically partisan battles it plans will be best fought (and won) in that period. 

The Trump factor will add enormously to uncertainty in Irish economic policy in 2025. This level of uncertainty was already high with slowing economic growth in the UK, France, Germany and China, to name some large economies. 

When things are improving, you want greater exposure to beta – but not when they are disimproving. When that happens, you want to fasten your seatbelt!

*Disclaimer: The views expressed in this column published in the December 2024/January 2025 issue of Accountancy Ireland are the author’s own. The views of contributors to Accountancy Ireland may differ from official Institute policies and do not reflect the views of Chartered Accountants Ireland, its Council, its committees, or the editor.