Editor’s (re)View: Threat of Trump tariffs on pharmaceuticals puts industry on further edge
President Donald Trump has dubbed Wednesday, April 2 as “liberation day” and “the big one,” when he is expected to announce his administration’s plans for reciprocal tariffs, potentially impacting dozens of countries — including India and the European Union. On the heels of his doubling the levy on Chinese imports to 20%, April 2 is also the day Trump’s one-month pause on 25% tariffs on Canadian and Mexican imports is set to be lifted.
The pharmaceutical industry was already on pins and needles in anticipation of those tariffs. However, this week Trump gave drugmakers even more to worry about, saying in the not-too-distant future he would be announcing tariffs specifically targeting pharmaceuticals. But what form might that take?
Last month, Trump threatened to impose a 25% across-the-board tariff on pharmaceuticals as early as April 2. What’s unclear is whether Trump’s pharma-specific tariffs would be in lieu of the reciprocal tariffs slated to be announced next Wednesday or in addition to them. Either way, the biopharma industry is bracing for the worse.
A new survey out this week from the Biotechnology Innovation Organization (BIO) showed that nearly 90% of U.S. biotech companies rely on imported components for at least half of their FDA-approved products, making the supply of these medicines particularly vulnerable to tariffs on Canada, China, and the European Union (EU).
The survey, conducted last month, also found that 94% of U.S. biotech companies expect “surging” manufacturing costs, if tariffs are placed on imports from the EU.
“Proposed tariffs on the EU would force 50% of companies to scramble for new research and manufacturing partners,” according to BIO, with 80% of biotechs surveyed indicating that they would need at least 12 months to find alternative suppliers — while 44% would require more than two years.
Target on Ireland?
Trump in recent comments has singled out one member of the EU — Ireland. After meeting with Irish Prime Minister Micheál Martin earlier this month, the president said Ireland “has got the entire U.S. pharmaceutical industry in its grasp,” noting that “through taxation, proper taxation, they made it very, very good for companies to move up there.”
Jefferies analysts in a report this week assessed the potential “foreign exposure” of large-cap biopharma companies that have manufacturing operations outside the U.S. and receive tax benefits from overseas operations. The analysts noted in their report the overseas manufacturing locations of the companies, specifically their “exposure to Ireland.”
Companies with Irish operations include AbbVie, Amgen, Bristol Myers Squibb, Eli Lilly, Gilead Sciences, Johnson & Johnson, Merck, and Pfizer, according to the analysts. Their report showed that Amgen has manufacturing operations in Ireland and Singapore, which provide a benefit to their effective tax rate of -6%.
At the same time, the analysts said uncertainty remains as to “what if any focus Trump has on patents and IP domiciled in Ireland and on [companies] benefiting from patents there, i.e., not necessarily the manufacturing of the respective products.”
Generics vulnerable to tariffs
The Association for Accessible Medicines (AAM) has warned that tariffs on generic drugs would increase the risk of drug and active pharmaceutical ingredient (API) shortages. It’s a concern shared by Marta Wosińska, a senior fellow at the Brookings Institution, who worries that any production disruptions in the “already fragile generic injectable markets” are likely to result in shortages.
“Tariffs will provide a strong incentive for increasing U.S. manufacturing of brand-name drugs but not of older, off-patent generic drugs, which represent over 90% of the volume but only a small share of spending,” wrote Wosińska in a Thursday research article.
She contends that the pressure of tariffs on both domestic and foreign generics manufacturers “will test their already low margins, potentially leading to product discontinuations or cost cutting that erodes quality.”
If Trump is looking to onshore generic drug manufacturing, he will need to use policy tools other than tariffs such as direct financing, according to Wosińska. “Branded drug tariffs will likely generate significant revenue, which could then be used to stimulate onshoring of generics,” she argued.
