WASHINGTON (AP) – President Donald Trump has implemented tariffs on products from nearly every country around the globe, particularly focusing on imports like automobiles, steel, and aluminum. However, his initiatives concerning tariffs are not yet complete.
Recently, Trump has expressed intentions to impose significant import taxes on pharmaceuticals, an area previously spared in his trade conflicts. Historically, imported medications have generally been exempt from duties when entering the United States.
This trend is beginning to shift. U.S. and European leaders recently announced a trade deal that introduces a 15% tariff on certain European goods entering the U.S., including pharmaceuticals. Trump has threatened to impose tariffs as high as 200% on drugs manufactured outside of the U.S.
Maytee Pereira of PwC described Trump’s impending measures as “shock and awe,” emphasizing that the pharmaceutical industry could transition from having zero tariffs to facing extremely high rates. Trump's rhetoric includes promises to reduce drug costs for Americans, but the introduction of such high tariffs could lead to adverse effects, such as disrupted supply chains, increased prices for generic medications, and potential shortages.
Diederik Stadig, a healthcare economist with ING, highlighted that a tariff would significantly affect consumers, resulting in increased out-of-pocket costs for prescriptions and higher insurance premiums, particularly impacting lower-income families and the elderly.
Trump has indicated he would postpone the enforcement of these tariffs for a year or a year and a half, allowing pharmaceutical companies the opportunity to stockpile medications and relocate manufacturing to the U.S.—a process some companies have already begun. Financial analysts note that many drug manufacturers have already raised their import levels and may have six to eighteen months’ worth of inventory in the U.S.
Furthermore, analysts believe that tariffs scheduled to take effect in late 2026 may not impact consumers until 2027 or 2028 due to existing stock. Observers also suspect that Trump may set a tariff lower than the proposed 200%, especially considering possible exemptions for certain products, such as low-margin generic drugs.
Even a 25% tariff could result in U.S. drug prices increasing by 10% to 14% as available stock diminishes over time. In recent years, pharmaceutical companies have increasingly relocated their operations abroad to capitalize on lower production costs in countries like China and India, resulting in a substantial U.S. trade deficit of nearly $150 billion in the medicinal and pharmaceutical sector in the previous year.
The COVID-19 pandemic has amplified concerns about relying on foreign nations for critical medical supplies, particularly when key suppliers include geopolitical adversaries like China. In response, the Trump administration has initiated investigations to evaluate how the importation of drugs and their ingredients affects national security, with Section 232 of the Trade Expansion Act of 1962 empowering the president to impose tariffs for national security reasons.
Marta Wosinska, a health policy analyst at the Brookings Institution, acknowledges that tariffs can help secure essential U.S. medical supplies. She pointed out that the Biden administration effectively taxed foreign syringes to protect domestic producers from being driven out of business.
Trump envisions more extensive measures, aiming to repatriate pharmaceutical manufacturing to the United States. He notes that drugs produced domestically would be exempt from his proposed tariffs. Major drug companies are already investing in U.S. operations, with Roche announcing a $50 billion investment in April to expand its U.S. footprint, while Johnson & Johnson plans to invest $55 billion within the next four years, aspiring to entirely source drugs for the U.S. market from domestic sites.
Constructing a pharmaceutical factory in the U.S. can be costly and time-consuming. Additionally, building factories in the U.S. would not inherently shield drug manufacturers from tariffs if those tariffs apply to imported raw ingredients needed for drug production. Jacob Jensen of the American Action Forum notes that a high percentage of antibiotics, antivirals, and popular generic drugs use at least one ingredient sourced from foreign manufacturers.
To truly protect themselves from impending tariffs, companies would need to develop a comprehensive supply chain entirely within the United States, according to Pereira. While brand-name drug manufacturers enjoy substantial profit margins that allow them to manage investments and absorb cost increases brought by tariffs, generic drug manufacturers may find themselves at a disadvantage.
Some generic manufacturers might choose to exit the U.S. market rather than contend with tariffs, which could be disturbing, given that generics account for 92% of prescriptions in U.S. retail and mail-order pharmacies. Past experiences, such as a production pause at an Indian factory leading to chemotherapy drug shortages, illustrate the fragility of these markets, as they struggle to recover from shocks.
Wosinska argues that tariffs alone may not be enough to incentivize generic drug manufacturers to build domestic facilities; government support might also be necessary. She envisions a situation where pharmaceuticals are produced entirely in the U.S., but this would require a significant financial commitment and a redesign of existing systems, emphasizing the need for discussions on the willingness to invest significantly in reversing decades of offshoring for cheaper drug prices.
