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Exports to the US have surged over the first quarter of the year, particularly of pharmaceuticals, as firms were front-running the April implementation of tariffs. At particular risk was the pharmaceutical sector, given it makes up a large share of Irish exports to the US. As it happens, pharmaceuticals were excluded from this round of tariffs, but the administration has signalled they may be still be subject to tariffs. The looming threat that pharmaceuticals will be tariffed provides an obvious incentive for firms to keep imports elevated. However, it is uncertain at what point logistical constraints will prevent firms stockpiling. At the very least, the data is likely to be more noise than signal for the foreseeable future.
What’s driving the surge in goods exports?
Irish goods exports in March were almost double what they were at the same point last year and over Q1 as a whole they grew by over 50% compared to Q4 last year. Highlighting how firms did their best to get ahead of US tariffs in March, almost all that increase has been driven by a 395% y/y increase in exports to the US. Exports to the EU and UK are actually down compared to last year. In fact, more than two-thirds of exports were US-bound in March compared to around 25% at the same point last year.
The area most vulnerable to US tariffs is clearly the pharmaceutical sector as a large number of US multinationals have headquarters in Ireland and benefit from Ireland’s low corporation tax rates and one of the world’s most educated workforces.
In March alone, Ireland exported a massive €25.4bn in goods to the US, compared to an average of €6.1bn per month in 2024. What’s more, almost all of that was chemicals and related products, which includes medical and pharmaceutical products.
Given the huge surge in uncertainty around tariffs, it’s no surprise that exports to the US have grown in anticipation of any potential tariffs. Given the huge rise was primarily in the pharmaceutical sector, which was left out of the current tariff arrangements but floated as a potential target by President Trump, we expect uncertainty to remain elevated.
The fact that the pharmaceutical sector has been singled out as a target by the US administration provides an obvious incentive for firms to continue to import more than usual to avoid paying additional taxes. However, many pharmaceuticals are perishable and governed by strict regulation which places a limit on how long they can be stockpiled for. Therefore, we may see a sharp drop off in exports in the coming quarters if logistical constraints start to bite. At the very least, the data will remain noisy for the rest of the year even if exports fall back towards more normal levels.
Strong Q1, but growth to slow going forward
We expect GDP growth to be strong in Q1 because the trade balance will support the headline figure. However, that strength is unlikely to be continued into Q2 as there is some economic payback from the surge in exports in Q1.
That will make the headline GDP data even bumpier than normal in the first half of this year.
The Modified Domestic Demand (MDD) figures for Q1 and the rest of the year will be crucial to understanding how the underlying economy is performing as trade figures distort GDP even more than usual. MDD strips out trade and certain activity by multinationals, which can distort the headline GDP figures.
Underlying domestic growth will weaken with the introduction of tariffs and both the threat of and any further measures the US impose. The Department of Finance has already cut its forecast for MDD growth by 0.4ppts for 2025 due to the pervasive uncertainty that has encapsulated the economy. What’s more, that baseline forecast assumes the EU and US will reach a deal that removes tariffs. As a result, the government also laid out an alternative scenario, where current tariffs remain in place, that knocks a further 0.5ppts off domestic growth. This would leave growth at 2% instead of the near-3% growth we had expected this year.
Obviously, the big risk is that further tariffs are introduced on pharmaceuticals, which would prompt a much bigger hit to growth.
What’s more, negotiations with the US over tariffs are largely out of Ireland’s hands and in the European Union’s, which laid out how it would retaliate if it can’t strike a satisfactory deal with the US. This clearly is a risk to Ireland, which is by far the most exposed to US tariffs. We estimate that Ireland’s goods exports to the US were around 15% of GDP before tariff front-running. This is more than double the next most vulnerable country.
Ultimately, there’s a real chance growth slows later this year because firms will only be able to front-run tariffs for so long, regardless of whether tariffs end up being placed on pharmaceuticals. What’s more, Ireland’s small open economy will be particularly vulnerable to a slowdown in global growth, even if the US ends up walking back from most of its tariffs.
US to try and lure multinationals back
Even further ahead there’s a real risk that not only do tariffs damage the Irish economy directly, but that the US implements tax cuts for US multinationals as among other potential measures to incentivise firms to report more profits in the US going forward. In that scenario US multinationals would slow investment in Ireland, opting instead to expand operations in the US. In the long term, this means a risk operations in Ireland shrink significantly.
That would not only damage growth, but also Ireland’s huge budget surplus, which is dependent on corporation tax receipts. Just ten firms make up around half of the corporate tax take, highlighting Ireland’s exposure.
Conclusion
The upshot is that firms have clearly been front-running tariffs as best as they can so far to avoid them. While it looks likely the 10% universal tariff will remain in place beyond the 90-day pause, we expect uncertainty to remain elevated, especially given the lack of clarity on whether pharmaceuticals end up being on the receiving end of tariffs, which would be especially damaging to the Irish economy.
Ultimately, we expect a growth to look very strong in Q1 before falling back sharply later in the year as tariff front-running slows and uncertainty weighs on the domestic economy.
