The 2024 election that decides our future may not be the Irish one!

All eyes are on the election results this weekend…

But some economists don’t think much of what any of the main parties intend to do here and are looking instead across the Atlantic to gauge Ireland’s future. 

That is looking pretty precarious after the election of Donald Trump as president and what he did last week in advance of taking office.

Any hopes that Trump’s threats to slap tariffs everywhere were all hot air were dashed  with a series of renewed threats and hard-line appointments.

Trump did the thing Ireland perhaps feared most and appointed Howard Lutnick as Commerce Secretary.

The days when relations between the US and the ‘auld sod’ consisted of talking blarney over a pint of Guinness or a bowl of shamrock seem now well and truly long gone.

Lutnick, the boss of finance firm Cantor, means business. And that means  no favours for Ireland no matter how many pints of Guinness or bowls of shamrock he’s offered during political visits.

Lutnick has name-checked Ireland as one of the country’s freeloading on US success. He said it’s  “ridiculous” that we have such a huge amount of US money flowing our way and the sooner it ends back in America, the sooner the US will be ‘great again.’

Many share dealers and cryptocurrency dealers are fans of Trump and Luttnick’s  plans in general and they went on buying spree, pushing up prices.

But economists are living up their profession’s nickname as ‘the dismal science’ and taking a more downbeat, though some might say realistic, view.

Martin Wolf, writing in the Financial Times, predicted Trump will cause chaos, depress growth and ramp up inflation and taxes.

Saxa Bank, in its latest "outrageous" (though semi-realistic) predictions for 2025 forecasts that Trump's policies will cause the dollar to tank.

'If Trump 1.0 was the warm-up act for deglobalisation, Trump 2.0 will prove the main event, with all of its consequences for the US dollar', Saxo's annual series of Outrageous Predictions suggests. 

High tariffs on imports will put the US dollar under severe pressure in 2025.

Saxo predicts: 'The implications for the US dollar are dire for trade around the world, as it cuts off the needed supply of dollars to keep the wheels of the global USD system turning, ironically risking a powerful spike higher in the US dollar. 

'Instead, safety valves are found, as global financial actors scramble for alternatives.' 

In terms of the impact of the decline in the US dollar, Saxo said: 'The crypto market quadruples to more than $10trillion, the US dollar falls 20 per cent against major currencies and 30 per cent versus gold. 

'The US economy continues to reflate, but wages keep up with goods inflation, as production resources reshore to the US.' 

Neither are our own number-crunchers happy about our future prospects post-Trump.

On their joint podcast The Other Hand, economists Jim Power and Chris Johns thought that maybe the financial markets were losing the run of themselves as ‘crypto’ and share prices soared.

The podcasting pair were even less impressed with what any of our political parties propose to do about what could prove a massive looming crisis for Ireland in particular.

“Over the last two weeks the whole situation for Ireland has fundamentally changed but this is not being reflected in the sort of election promises that all of the political parties are making at the moment so it's pretty depressing stuff,” said Jim.

His podcast co-commentator agreed. “For my money, the world has changed enough for Ireland to say we need to rethink things, possibly rethink everything.”

“And to proceed as if nothing has changed is quite frankly fantasyland. It's phantasmagoric Alice in Wonderland whatever description you want to put on it. All of this giveaway stuff that they all of the parties seem to be seem to be doing …it's all about spending loads and loads of money.”

Any Trump successs in diverting significant US profits out of Ireland and into the US could prove catastrophic for us. 

We’re extraordinarily dependent on corporate tax which is set to hit €37bn this year – covering a third of Government spending - most of it coming from a handful of US firms.

“If they're targeting Ireland in the way that Lutnick specifically mentioned, then I think, Jim, you've got a lot to worry about haven't you?,” Johns said.

“Yeah we have Chris and and that's why the various manifestos really do disturb me,” his podcast buddy responded. 

In the throes of the election giveaway, all our major parties were throwing money around like a drunken sailor at a wedding when the mother of all financial storm clouds are gathering across the Atlantic.

“We go from €28 billion (FG) to €46 billion (in extra spending) depending on which party. Fine Gael is more cautious on the spending side and more extravagant on the tax side.”

Let’s hope these pair of ‘dismal scientists’ are being too pessimistic. 

Unfortunately, alas, I think they make a lot more sense than politicos on either side of the Atlantic.

We’ve already felt the seismic effects of Trump's win, good and bad.

Here’s how it will affect our finances:

The Dollar

The dollar soared with the euro worth just $1.07 after the election.

The ‘greenback’ is forecast to keep rising and even may hit parity with the euro, according to a report in the Financial Times - or even far surpass it if Saxa's Outrageous Prediction comes to pass.

This would make holidays much more expensive in the US and in many resorts with dollar-influenced currencies.

A strong US currency also makes energy more expensive as oil is priced in dollars. 

However, adding to confusion, that’s not uncommon in a Trump presidency, there were also reports of a secret plan in his camp to undermine the dollar in order to boost exports.

Interest rates

Prospects for lower interest rates are already hit with economists braced for the spate of US tariffs that would push up US inflation.

The main job of central banks is to control inflation with higher interest rates.   

And economists said on Wednesday that they expect ‘the Fed’ (US central bank) to proceed more cautiously with rate cuts in 2025, cutting by just a quarter point.

They will wait “until the realized inflation shock from tariffs has passed,” analysts at the Nomura investment house warned.

However, the unpredictable factor here could be Trump’s intended interference in The Fed’s hitherto sacred independent role in deciding interest rates (see panel), causing monetary chaos.

Corporate tax

Trump says he will slash corporation tax from 21 per to 15 per cent for companies making products in the US

Will he do actually this?  Yes. The last time around he quickly slashed corporation tax from 35% to 21%. He means business on this one.

What does it mean for Ireland.

Unfortunately for us, the co-chair of one Trump’s transition team is Howard Lutnick, boss of global financial firm Cantor Fitzgerald.

Cantor Fitzgerald sells Irish Government bonds and the enviable state of our finances cannot have escaped his notice.

As Lutnick tweeted recently: “It’s nonsense that Ireland of all places runs a trade surplus at our expense. We don’t make anything here anymore – even great American cars are made in Mexico. When we end this nonsense, America will be a truly great country again. You’ll be shocked!”

Ireland’s economy is dependent on a handful of US companies. Corporate taxes are forecast to hit €37bn a year by the end of the decade – accounting for over a third of present Government spending. Most of this comes from a few US firms. If Trump brings even some of the biggest multinationals home to the US, we would face economic disaster.

Bringing it all back home

Business deregulation, bringing manufacturing jobs in US companies back home and penalising companies that move production abroad. These are all on Trump’s to do list.

He will undoubtedly try. But the big question is how and to what extent it will work.

For Ireland, losing even certain US multinationals would suck out tens of billions in corporate tax revenue from the Irish Exchequer. 

Economists have compared the potential impact to being worse than the 2008 financial crisis when the IMF had to be called in to bail us out.

Tariffs

Trump aims to slap new tariffs on imported goods – 60% on those from China and up to 20% on imports from the rest of the world. 

There’s nothing new or radical about this. The EU has already put 35% tariffs on Chinese electric cars to protect its vulnerable auto industries from heavily subsidised Asian imports – in addition to 10% duties.  Less clear cut is how he will hit the EU. 

And what may hold him back is the impact this will have on US prices.

If he fires ahead, the move will seriously hit Irish exports to the US - worth $58bn in 2023 - adding billions to their cost.

The bulk of these exports ($40bn) comprises chemical and pharmaceuticals, mainly from US firms based in Ireland. 

Taxing these imports would lessen the incentive for these firms to be based in Ireland. 

Also in the firing line are food, livestock and alcohol products.

Energy

‘Drill baby drill’, was one of his catchphrases this year and he and his supporters are obsessed with gasoline (petrol) prices in the US.

Trump wants to build up US energy independence further with support for the domestic oil and gas sector, which may entail limiting energy exports.

The EU has imported US gas to replace sanctioned Russian gas. Reducing supplies from the US would put a brake on falling energy prices.

Cryptocurrencies

Trump plans to make America ‘the crypto capital of the planet’ and build a strategic reserve of bitcoin.

This means the US State will partly base the world’s reserve currency on an extraordinarily volatile ‘asset’ that legendary investor Howard Buffet once described as ‘rat poison’ 

Trump has also pledged to fire a regulator who has been seen as tough on crypto currencies.

As a result, Bitcoin soared from €67k to a new record of nearly $100,000 in the weeks after the election - topping the previous record of almost $74,000.