A trade war between the US and the EU could cost Ireland more than €18bn (£15bn), trigger waves of job losses and cause US multinationals to relocate, according to a report co-authored by the Irish government.

Ireland’s GDP could shrink by 3.7% over the next five to seven years under the worst-case scenario, in which Donald Trump imposed 25% tariffs on all exports on the EU and the EU retaliated with counter-tariffs, the study carried by the Economic and Social Research Institute (ESRI) found.

A Trump slump would be unavoidable whatever the tariff scenario, it found. If the US president imposes 10% tariffs on all global imports, the impact would be significant, with Irish GDP dropping by 3.2% compared with a no-tariff scenario, the study showed.

The ESRI said nearly all tariff scenarios would have a “significant negative impact” on the Irish economy, with a knock-on effect causing job losses and potential loss of US multinationals.

“Protectionist policies may also prompt multinationals to relocate to the US, posing further risks to the Irish economy and public finances,” Paul Egan, the report’s author and a research officer at the ESRI, said.

Ireland is one of three EU countries with a surplus in goods trade with the US, with pharmaceutical companies including Pfizer and Eli Lilly driving many of its exports, booking the profits from sales across the Atlantic in Ireland – a practice that Trump wants to stop.

The Irish government is already nervous about the impact of Trump’s threat of tariffs after the US president singled out what he considers to be the theft of jobs and investment by Ireland.

In a meeting with the Irish taoiseach in the Oval Office two weeks ago, Trump praised Ireland for being “smart” but said it had the “entire pharmaceutical industry in its grasp”.

Experts in Ireland have said that the threat of a tightened tax regime were more likely to incentivise pharmaceutical companies to book their profits in the US, rather than endure tariffs.

The impact of trade barriers on manufacturing sectors including pharma, medical devices, food production and the IT sector would have an impact on jobs but also income tax revenues for the state, the report, co-authored by the Irish finance ministry, said.

It forecast that the 3.7% reduction in GDP would equate to the loss of €18.4bn taking last year’s GDP as the baseline. A shrinking economy could also trigger inflation, with higher import prices on goods affected by retaliatory tariffs.

By value, Ireland’s biggest imports from the US are aircraft, because of the size of the budget airline Ryanair and Dublin-headquartered Aercap, the world’s largest aircraft leasing company. Other significant imports include pharmaceuticals, machinery, optical and medical apparatus and energy, including liquid gas and oil.

Egan said his research team could not quantify the scale of the impact of uncertainty caused by Trump’s threats of tariffs but said it would have an impact.

“The heightened uncertainty in the short run could actually magnify the impacts, kind of beyond what we discuss in the paper,” he told RTÉ’s Morning Ireland.