Ireland-US bilateral trade and investment: A mutually beneficial relationship

29th May, 2019

  • Ireland among 21 countries listed in US Treasury Department’s “Foreign Exchange Report”;
  • Ireland’s goods trade surplus with US of €23 billion;
  • Ireland runs substantial services trade deficit with US;
  • As a result, Ireland runs a broadly balanced trade position with the US.

The US Treasury Department (the ‘Treasury’) last night (Tuesday) published its six-monthly report to Congress entitled “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” (the ‘foreign exchange report’).

The report includes a ‘monitoring list’ of countries which, according to the Treasury, require close attention in relation to their “currency practices and macroeconomic policies”. The Treasury has established several criteria for a country to be included on the list.  The monitoring list has expanded from previous reports and, for the first time, now includes Ireland.  Several other European Union Member States are also included.

One of the Treasury’s criteria for inclusion on the monitoring list is the size of a trading partner’s surplus in goods trade with the US.  Trade in services is not taken into account. (See Notes to Editors)

Ireland has consistently run a goods trade surplus with the US.  Last year, goods exports from Ireland to the US amounted to €39 billion (mainly pharma products), while imports from the US amounted to €16 billion (mainly imports of aircraft by Irish-based aircraft leasing companies).  As a result, Ireland ran a merchandise trade surplus of €23 billion with the US in 2018. 

From an Irish perspective, it is important to look at bilateral trade developments in the round, i.e. to include bilateral services trade in any analysis.  

In 2017 (latest year for which data are available), Ireland imported over €47 billion of services from the US (high-value R&D product development underpinning many of Ireland’s pharmaceutical exports largely occurs in the US and, as a result, the chemical and pharmaceutical sector in Ireland incurs significant royalties and licence fees* as well as making extensive payments for business services to their US parents).  The value of services imports from the US is higher than from any other country.  On the other hand, Ireland exported €18 billion of services to the US (mainly computer services and royalties).  As a result, Ireland ran a significant (€29½ billion billion) services trade deficit with the US.

Combined with a goods surplus of around €29 billion in 2017, Ireland ran an overall trade deficit with the US (-€600 million) in 2017.
Commenting on the trade position, Minister for Finance and for Public Expenditure and Reform, Paschal Donohoe T.D., said: ‘While Ireland runs a large goods trade surplus with the US, we simultaneously run a large services trade deficit.  The latest data show a broadly balanced trade position when both goods and services are taken into account. The Irish economy is deeply embedded in global supply chains – we are a very open economy.  This is especially evident in our trade with the US, where our two countries have integrated and complex supply chains.  This is a mutually beneficial relationship – it is a two-way street.  Ireland and the US have a mutually advantageous economic bilateral relationship which can be measured by US foreign direct investment into Ireland, and Irish investment in the US.  To put numbers on this, US-owned firms employ around 150,000 people in Ireland while Irish-owned firms employ around 100,000 people in the US. According to statistics from the US Commerce Department, Ireland is the eighth largest source of foreign direct investment to the US.  The top three sectors involved are Software/ICT, Business Services; and Food and Beverage’.

A second criterion for inclusion on the monitoring list relates to the current account of the balance of payments.  In 2017, Ireland ran a current account surplus amounting to 8.5 per cent of GDP, above the Treasury’s 2 per cent threshold (the surplus in 2018 was 9.1 per cent of GDP).
It has been well documented that Ireland’s current account is heavily distorted by factors such as “contract manufacturing”** and the on-shoring of intellectual property assets.  Accordingly, it is unrepresentative of Ireland’s financial transactions with the rest of the world.  To account for this, the CSO also produces a “modified current account” which, in 2017 (latest data) was approximately 1¼ per cent of national income, which is below the Treasury’s threshold.  Modified current account figures are deemed to be a more appropriate reflection of Ireland’s position.
Commenting on the report, Minister Donohoe said: ‘Ireland’s highly skilled, flexible workforce and its location between mainland Europe and the US have long made it an attractive proposition for American companies looking to establish a European presence.  Multinational companies locating in Ireland, including from the US, gain financial benefits which supports their worldwide operations. At the same time there are over 500 Irish owned companies (in Ireland) exporting to USA, around two-thirds of these having a full-time presence in the US, ranging from a single person sales office to manufacturing operations with thousands of employees.  Irish companies, therefore, make a sizeable contribution to the U.S. economy. The Government has recently launched a strategy to boost economic relationships between Ireland and the US and Canada, including by expanding the footprint of both the IDA and Enterprise Ireland in these countries’.


*Broadly speaking, royalties and licence fees are payments by the Irish resident entity (and, accordingly, an import of a service) to its parent for use of the (for example) intellectual property rights in order to manufacture in Ireland.
** Contract manufacturing is a form of outsourcing whereby an Irish-resident firm engages a company abroad to manufacture goods on its behalf (and vice versa).  Crucially, the inputs used in the production process, including the valuable intellectual property rights, remain in the ownership of the Irish-based entity and no change of economic ownership is deemed to take place during the production process.  Putting it another way, the foreign-based contract manufacturer supplies a manufacturing service to the Irish-based company with the former entity never taking ownership of the product.  When these goods are finally sold in a third country, a change of economic ownership is deemed to take place and the transaction is recorded as an export from the Irish-based entity.  While this activity inflates Ireland’s exports, it has almost no impact on Irish living standards as it generates little or no domestic activity/employment.


Note to Editors:

  • Under law, the US Treasury Department publishes a six-monthly report entitled “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States”.  This report is formally submitted to the US Congress.
  • The report includes a ‘‘Monitoring List of Major Trading Partners’’ that, according to the US Treasury, require ‘‘close attention in relation to their currency practices and macroeconomic policies’’.
  • The Treasury has established three main criteria for inclusion on this list:
    1. A significant (defined as ‘at least $20 billion’) bilateral trade surplus with the United States (importantly, this criterion only applies to goods trade);
    2. A material (defined as ‘at least 2 per cent of GDP’) current account surplus; and,
    3. Persistent, one-sided currency intervention which occurs when net purchases of foreign currency are conducted repeatedly and total at least 2 percent of an economy’s GDP over a 12-month period.  [Not applicable to Ireland]
  • In 2018, Ireland’s merchandise/goods surplus with the US amounted to €23 billion.  This consisted of €39 billion of goods exports (mainly pharma products) to the US and €16 billion of goods imports from the US.
  • The composition of exports and imports is set out in the graphs below.
  • The current account of the balance of payments measures net trade (goods and services) less net profit repatriations and is generally expressed as a share of GDP.  The modified current account excludes the distortions caused by investments in intellectual property assets, leased aircraft and re-domiciled plcs, and is expressed as a share of modified gross national income.
  • A third criterion used by the Treasury Department is “sustained, one-sided intervention in currency markets”.  This does not apply to Ireland as it is a member of the euro area.

Irish exports to the US, € milions



Source: Dept. of Finance calculations on basis of CSO data.



Irish imports from the US, € milions