United States President Donald Trump has announced another fresh series of tariffs on specific industries, with declaring that import of branded pharmaceuticals will have a 100% tariff in the USA, unless the companies are already manufacturing their facilities in the country.
The order will take effect from 1st October. However, companies that are building production facilities in the United States are exempted.
After imposing a 50% tariff on India (including extra 25% for acquiring Russian oil) this move is yet another effort to harm the country, popular as the “pharmacy of the world,” alongside another major Asian economy, China which also has a precarious relationship with the Trump administration.
According to the Census Bureau, the United States imported pharmaceutical and medical goods valued at around $233 billion in 2024. Trump appears to have conveniently forgotten that this will ultimately harm the financial interests of his voters, as some medications might double in price, as healthcare costs as well as those of Medicare and Medicaid could rise significantly.
Trump warned in early July that he planned to impose tariffs of up to 200 per cent on goods from pharmaceutical companies after asking them to relocate their operations to the US.
According to reports, at least half of the approved goods produced by nearly 90% of US biotech companies depend on imported components. The Trump administration started looking at the effects of all drug imports on US national security in April, including both branded and completed generic medications along with the components that are utilised in making them.
Additionally, the Republican leader declared sweeping taxes on a variety of domestic products, such as imported kitchen cabinets and specific furnishings, which might raise prices in an industry where hikes in costs have already occurred in recent months. His administration will levy a 30% tariff on upholstered furniture and a 50% duty on kitchen cabinets, bathroom vanities and related products from next month. 25% heavy truck tariff has also been slapped.
Trump has consistently upheld the tariffs, claiming that the US market has been overwhelmed with foreign goods despite considerable opposition and an alarming strain on diplomatic ties with allies like India. However, he referred to it as a profoundly unfair practice and stated that the US needs to protect its manufacturing processes for national security and other critical reasons.
New challenges for India
The development has caused a stir in the pharmaceutical world. The measure spares generics, the less expensive equivalents created after patents expire, by specifically targeting branded and patented medications. The difference makes the situation somewhat easier for India, the world’s largest producer of generics medicines.
India’s biggest market is the United States which receives over one-third of India’s pharmaceutical exports that are primarily less expensive generic substitutes for well-known medications. Major exporters of medications and active pharmaceutical ingredients to the United States include Sun Pharmaceutical, Lupin, Aurobindo Pharma, Zydus Lifesciences, Hetero Labs and Dr Reddy’s Laboratories. They sent $3.7 billion worth of goods to the US from January to June this year, and $3.6 billion last year.
However, according to industry analysts, India remains at risk even if generics are not included in the directive. Many businesses also use contracts with global corporations to manufacture formulations and ingredients for branded products. If the final medications are taxed, those collaborations can be broken.
Others are concerned about how the word “branded” would be interpreted by US officials. Even generics have a manufacturer’s label, and a vague or ambiguous definition could end up in customs delays, inspections or extra charges for Indian imports.
The primary issue at hand is the trajectory of US policy. Trump’s exemption for companies that are “constructing” facilities in America is broadly interpreted as a message to pharmaceutical firms that they need to create production capabilities within the United States. Purchasing American facilities will result in increased capital expenses and reduced profit margins for India’s largest exporters. Smaller businesses might not be able to match the demand.
Notably, the United States is also vulnerable to the impulsive decisions made by Trump. The tariff could distort the pharmaceutical market in the United States. Interestingly, short-term increases in demand for generic alternatives could even benefit Indian providers if import taxes make branded medications more expensive.
Trump rewards Americans voters by retracting his promise
It is not surprising for a politician to make grand and extravagant promises to the public in order to secure their votes and the US president is no exception. He has made a long-standing commitment to reduce drug prices and even attached some shocking figures to it. The “most favoured nation” policy his administration announced in an executive order in May, he asserted, will lower prescription medicine costs by 1,000% or more.
Trump made several statements reassuring the American public that they would see a sharp decline in medication prices Following his repeated failure to deliver on his promise. He conveyed, “We have something coming up, favored nations, where I’m going to be reducing drug prices by 1,400 to 1,500%,” during last month.
Trump had also said, “We’re gonna be reducing drug prices down to a level that nobody, not by 20%, 30% by like 1,000%. Because, you know, we’re paying sometimes 10 times more than other nations, and we’re not doing it anymore,” in September. “We have something else called ‘favored nations,’ where I’m going to be reducing drug prices by 1,000% by 900, 600, 500, 1,200,” he alleged after a few days.
Notably, it is impossible to reduce prices by any percentage above 100%. A 100% reduction means a price of 0, and any reduction over it will mean negative price.
The president would only manage get a 100% cut if he could somehow convince the businesses to bring down the cost of all their medications to $0. If it were reduced by more than that, Americans would have to be compensated for obtaining their prescription drugs instead of having to pay for them. Trump’s promises, according to health economist Timothy McBride, are “just not logical.” He outlined that a 500% price drop would result in a medicine that currently costs $100 to drop to negative $400.
Put aside any expectations of price reductions or paying customers for their medicine purchases, as ridiculous as it sounds, the White House’s decision is set to burn a hole in the pocket of a regular American.
US dependence on India and China
The supply chains for life sciences which have been increasingly globalised in the last ten years are being severely disrupted by the new tariffs. Due to a significant reliance on foreign suppliers for medications, chemicals and research materials, the United States currently imports more than $200 billion worth of pharmaceuticals yearly, more than double its exports.
Nearly 90% of US biopharma companies depend on imported components for at least half of their products, and up to 82% of the “building blocks” for active pharmaceutical ingredients for essential medications come from China and India.
Therefore, the supply of raw materials, reagents, laboratory equipment, and finished pharmaceutical products into the US market could be hampered by tariffs on important trading partners, such as China, India, the European Union, Canada and Mexico.
China and India are particularly susceptible when it comes to critical inputs. China provides about 30% of the raw materials used to create popular medications. This contains the chemicals for cancer and heart drugs that Americans rely on as well as multiple antibiotics. Three percent of active pharmaceutical ingredients (APIs) used in the US, along with significant amounts of precursors, packaging materials, and production equipment, originate in China, according to Caroline Shleifer, CEO of a regulatory research business.
Higher raw material costs will “trickle down the supply chain” and ultimately raise production costs, she maintained, forcing tariffs on these imports to “disrupt the global supply chain for pharmaceuticals and life sciences,” reported Labiotech.
Drug distributors are represented by the Healthcare Distribution Alliance (HDA) which also warned that generic producers and distributors who operate on extremely small margins of less than 0.3% are unable to bear such high tariff charges. As businesses struggle to get ingredients and prices are passed on to payers and patients, they predict “new and worsened shortages of important medications.”
All things considered, the tariffs are expected to tighten supply constraints and possibly exacerbate the current drug shortage issue in the United States.
US drug costs set to rise
According to an analysis commissioned by the industry’s US trade group, a 25% tax on pharmaceutical imports would raise the cost of drugs by around $51 billion a year in the country, hiking US prices by as much as 12.9% if transferred forward, reported Reuters. The Ernst & Young analysis revealed that 73% of the $203 billion in pharmaceutical imports into the US in 2023 came from Europe, mainly from Germany, Switzerland and Ireland.
$393 billion was spent on finished pharmaceuticals in the United States that year. The primary US pharmaceutical lobby, the Pharmaceutical Research and Manufacturers of America commissioned the report which was dated 22nd April and has not been published yet.
Trump’s proposed tariffs could boost the cost of some cancer treatments by $8,000 to $10,000 for a 24-week course, according to Diederik Stadig, an analyst at ING Bank, per a report in Investopedia. Generic medications would probably cost an average of 94 cents a pill instead of the current 82 cents.
The higher prices would either be incurred by consumers or eventually passed on to them in the form of higher health insurance premiums. “The initial impact on both patients and the U.S. health care system could be very significant,” Stadig highlighted.
According to Ted Murphy, a trade lawyer at Sidley Austin, a law firm that advises businesses on their submissions to the Commerce Department, drugmakers view Trump administration’s investigation into pharmaceutical imports as an opportunity to demonstrate that high tariffs would impede their attempts to rapidly speed up US production and suggest alternatives.
Drug companies have reportedly urged Trump to gradually impose taxes on pharmaceutical imports in an effort to lessen the impact of the charges. However, their submissions appear to have an opposite effect on him.
Finding effective solutions proves to be difficult
Some firms turned to stockpiling before tariffs were imposed in order to prevent sudden supply disruptions. Some European pharmaceutical companies took the unprecedented step of air-freighting additional batches of medications to the United States to avoid tariff deadlines prior to the April announcements. However, this stockpiling gives US operations a temporary buffer and are only short-term yet expensive.
Several multinationals had previously announced billions in additional US manufacturing investments in recent months to speed up local production of important drugs. Dual production hubs have been considered by many companies. Theoretically, increased production in the United States would lessen dependency on imports and exposure to future tariffs.
However, in reality, onshoring is neither quick nor inexpensive. Given the strict FDA rules and validation criteria, the pharmaceutical industry and its lobby (Pharmaceutical Research and Manufacturers of America) pointed out that constructing a new pharmaceutical factory in the United States can take five to ten years and cost approximately $2 billion.
Moreover, it can take at least two years to add futher manufacturing lines to an existing facility in the country. This means that while corporations are pledging to boost local capacity, their efforts will not avert the near-term supply problems.
Businesses are radically rethinking supply chain design in addition to shifting operations. Many are spending money on insurance, inventory control, and backup suppliers to deal with trade outages. Some biopharma executives propose maintaining several smaller production facilities across the globe, instead of a single huge plant, so that they can respond flexibly to changes in geopolitics or tariffs.
Others are considering the possibility of decentralised clinical trial models which involve conducting trials at homes of patientsor nearby clinics, in an effort to lessen the need to carry medical supplies across international boundaries. However, t hese modifications are not without their own associated expenses and risks.
Conclusion
The pharmaceutical supply chain is expected to experience severe short-term disruptions. Many businesses anticipate at least a year of interruption before appropriate workarounds are in place because it takes time to adapt intricate global supply networks. The industry will need to prepare for higher input costs overall during this period of adjustment.
The prices of pharmaceuticals and research supplies are predicted to rise in the United States as a result of this cost increase. It also put pressure on the margins of many manufacturers, particularly those who make generic drugs and are already struggling financially.
To summarize, after instigating a global trade war by announcing his “beautiful tariffs” and causing the loss of billions dollar for the US market in addition to negatively impacting the global economy, the self-proclaimed greatest US president is once more set to trigger a similar series of shockwaves through his actions against global pharmaceutical hubs, thereby adversely affecting his own countrymen as a result of his misguided judgements.
