President Trump’s tax policies and tariff strategies present a conflicting stance, as the tax code incentivizes the very offshoring that tariffs aim to discourage.
Consider the pharmaceutical sector, which is valued at over $600 billion. Recently, administration officials have openly criticized drug manufacturers for relocating production overseas, especially to Ireland. Commerce Secretary Howard Lutnick emphasized the risk of dependency on foreign nations for essential products.
However, the tax benefits embedded in the 2017 tax reform legislation largely contributed to this trend. This legislation introduced a loophole that makes it financially advantageous for major pharmaceutical companies—including Eli Lilly, Pfizer, Johnson & Johnson, and Merck—to produce highly profitable medications in Ireland. Consequently, U.S. pharmaceutical imports surged to $250 billion in 2024, more than doubling the $110 billion recorded in 2016.
American corporations now report approximately $350 billion in annual profits in leading global tax havens such as Ireland, Luxembourg, and Singapore. While pharmaceutical giants have exploited this tax provision extensively, companies in the semiconductor and technology sectors also benefit from the same preferential rates.
There remains an opportunity to reform these tax incentives to both increase federal revenue and eliminate the perverse motivations that encourage offshoring.
Although critics often point to Ireland’s lower corporate tax rate as the root cause of profit shifting, the primary driver lies within a lesser-known section of the U.S. tax code. It imposes a reduced 10.5 percent tax on global earnings when companies relocate intellectual property profits abroad, compared to the 21 percent tax rate applied to domestic profits. This tax break was designed as a compromise to deter companies from relocating their headquarters overseas without fully ending international tax competition or pressuring U.S. corporate tax rates.
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