Strong dollar good news for Irish plcs in the US
WHATEVER about “making America great again”, Donald Trump simply cannot buck the basic laws of economics. Since winning the US presidential election, the US dollar has climbed sharply in value. During the week it hit a 14-year high against the euro on the back of an interest rate rise and the fact that the US Federal Reserve signalled up to three more hikes in 2017.
Trump seems to want a strong dollar. Yet at the same time he wants companies to produce more goods in America and increase exports. A strong dollar will undermine America’s competitiveness when it companies to selling their US-made products around the world.
The latest speculation is that Trump’s Corporation Tax reform will cut the rate but in a way that benefits exporters the most. It may even see big importing companies get a lot less of the tax benefits. This is bad news for US retailers who import most of what they sell.
It could spell trouble for growth in FDI in Ireland. The US is our biggest export market with €26bn of exports last year accounting for nearly a quarter of everything we sell abroad.
A lot of it is pharmaceutical products, chemicals, medical devices and drink. Any US company supplying the US market with product it is having made in Ireland, might not get the tax benefits that Trump’s incoming administration is talking about offering.
In the meantime, a strong dollar will be good for any large Irish company that sells a lot of product in the US and gets paid in dollars. This includes the likes of CRH which generates around 40pc of revenue in dollars. Kerry Group has sizeable operations in the US and a client base there too. The American market is also a big play for Glanbia.
No wonder then, that CRH’s market value is up nearly €3bn since November 1st. Kerry group’s market value is up €600m in the last month. And Glanbia’s is up €290m since the beginning of November.
The risk for all of these companies is that Trump may deliver a strong dollar but what other damage might he do to the economy along the way?