If economic alarm bells are ringing anywhere in Europe after President Obama's State of the Union address last night, they may well be loudest in Ireland. The speech set out a direct challenge to the country's long controversial Corporation Tax regime, one that has helped maintain a relatively strong high technology sector despite the republic's other serious economic difficulties. It has helped attract blue chip players like Intel and Google.

Specifically, the initial policy brief is that Obama wants to introduce legislation that forces multinational corporations to pay much, if not all of the difference between US and international rates, even if they do not repatriate profits from their overseas operations.

"No American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas," Obama said. "From now on, every multinational company should have to pay a basic minimum tax. And every penny should go towards lowering taxes for companies that choose to stay here and hire here."

In political terms, Ireland's 12.5% rate has never been popular with its neighbours. Within the Eurozone, France and Germany hate it with a vengeance. It also raises bile in Whitehall. But in all these cases, the issue has been mostly about competition for inward investment, particularly from the US. So, though these big European hitters want Ireland to eventually bring its rates into line with the rest of their region, they have not launched a head-on attack while the country struggles to restructure.

Obama's agenda is different. He knows the coming presidential election will be fought on jobs, jobs, jobs. Note that his proposal does not envisage the extra revenues being used to pay out the massive US deficit but directs "every penny" towards rebuilding domestic manufacturing.

There is still a long way to go for any such proposal to become law. Be sure that the corporations themselves will lobby hard against the new basic minimum rate, and plenty in both the Republican and Democratic parties will be less than keen.

But it was also one of a number of bear traps that Obama aimed to set for his opponents as the 2012 campaign begins. Bringing manufacturing home sat as one of Obama's specific themes alongside clean energy (in the broadest sense), more 'fairness' in income tax and others.

Targeting offshored jobs and profits plays well to the centre of the US electorate, voters in the heartlands hardest hit as companies have globalised and factories have moved abroad. So, right now, Ireland - and other low corporation tax states - should be wary of the proposal.

The particular challenge for Ireland is that wages have risen as its inward investment policy has delivered benefits. So, while many companies say that tax is now a secondary-order issue in their decisions to shift manufacturing (the real issue may no longer be even salaries but the ability to deliver capacity quickly), the Irish have less of an advantage here than in still lower labour cost markets, particularly in Asia.

It may well be a Canute-like response to globalisation in practical terms. But this is politics, and in America, that's a contact sport.

Edited: 25 January 2012 at 01:04 PM by Paul Dempsey