Washington, Sep 1 (AP) President Donald Trump has implemented tariffs across a wide range of products globally, focusing particularly on sectors like autos, steel, and aluminum. Yet, his trade campaign is far from finished. Trump has now turned his attention to pharmaceuticals, a category that has historically enjoyed duty-free entry into the United States.
Recent developments indicate a shift in this trend. A new trade agreement between the US and European leaders outlines a 15% tariff on select European goods, including pharmaceuticals. Meanwhile, Trump has proposed potential tariffs of up to 200% on drugs manufactured outside these regions.
Maytee Pereira from tax and consulting firm PwC describes the situation as “shock and awe” for the pharmaceutical industry, which faces the prospect of tariffs soaring from zero to as high as 200%. While Trump has vowed to reduce drug prices in the US, economists warn that imposing significant tariffs could have the opposite effect, disrupting supply chains, eliminating low-cost generic drugs, and potentially sparking shortages.
Diederik Stadig, a healthcare economist at ING, notes that such tariffs would primarily hurt consumers by increasing prescription costs and triggering higher insurance premiums. Lower-income households and the elderly are anticipated to bear the brunt of these costs.
In addition to tariffs, Trump is putting pressure on drug companies to lower prices domestically by requesting plans for "most-favored nation" pricing. Despite these pressures, Trump has delayed imposing tariffs for up to 18 months, allowing companies time to stockpile medicines and consider relocating manufacturing to the US, a move several companies have already initiated.
Analysts like David Risinger of Leerink Partners and David Windley of Jefferies suggest that the actual impact of tariffs may not be fully evident until 2027 or 2028 due to strategic stockpiling and potential delays. Expectations are that any implemented tariffs will likely be lower than the proposed 200%, with consideration for exemptions, especially concerning low-margin generics.
Even a 25% tariff, Stadig predicts, could eventually lead to a 10% increase in US drug prices as stockpiles deplete. Over the years, many pharmaceutical operations have relocated overseas, prompted by cost efficiencies in countries like China and India and tax incentives in Ireland and Switzerland, resulting in a US trade deficit in pharmaceuticals reaching nearly $150 billion last year.
The COVID-19 pandemic highlighted the risks of dependence on foreign-produced medicines, particularly when geopolitical tensions, like those with China, come into play. In April, the US administration began examining how drug imports impact national security, leveraging Section 232 of the Trade Expansion Act of 1962 to justify potential tariffs.
Marta Wosinska, a health policy analyst at the Brookings Institution, acknowledges that tariffs might be used strategically to safeguard US medical supplies. The Biden administration has successfully applied tariffs to protect US syringe manufacturers against cheaper Chinese imports.
Trump aspires to repatriate pharmaceutical manufacturing to the US, underlining that domestically produced drugs will be exempt from tariffs. Encouragingly, companies like Switzerland's Roche and Johnson & Johnson are making significant investments in US operations.
Nevertheless, constructing new pharmaceutical facilities stateside is costly and time-consuming. Furthermore, tariffs could extend to imported ingredients in US-made drugs. Jacob Jensen from the American Action Forum highlights the challenge with most antibiotics and antivirals relying on imported components.
Pharmaceutical giants with robust profit margins might absorb initial tariff impacts and invest domestically. In contrast, generic manufacturers, who dominate 92% of US prescriptions, may struggle, potentially exiting the US market rather than facing prohibitive tariff costs, leading to disruption of essential drug supplies.
A case in point: A factory halt in India previously caused critical chemotherapy shortages. According to Wosinska, generics would likely require government incentives to build US factories, as tariffs alone may not suffice.
“Ideally, crucial products would be manufactured domestically,” said Wosinska. “Yet, reversing the offshoring of supply chains would demand substantial investments.” The question remains: To what extent is the US willing to invest to achieve a fully localized pharmaceutical supply chain?
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