While on the surface it may look like pharmaceuticals have been spared by Donald Trump’s “Liberation Day” trade policies, drugmakers still lack a clear picture of how they will be impacted. The US president has not, as of yet, imposed “25 percent or higher” tariffs as originally pledged, but that does not mean biopharma, an industry that relies heavily on global manufacturing, is off the hook.
Confusion for Pharma
Donald Trump’s tariff announcement last week left many reeling. His 10 percent baseline duty on all imports as well as higher levies for several of the US’s most important trading partners, including the European Union, stand to have an enormous impact, effecting a slew of industries from automobiles to electronics. For drugmakers, however, the reaction to the president’s trade bombshell was confusion.
Trump mentioned pharmaceuticals when announcing the new tariffs. “We are going to produce the cars and ships, chips, airplanes, minerals and medicines that we need right here in America,” he said. “The pharmaceutical companies are going to come roaring back.” But pharma companies, who depend on foreign manufacturing, gave a sigh of relief when a fact sheet was then issued by the White House saying that pharmaceuticals would “not be subject to the Reciprocal Tariff.”
While the life sciences have been temporarily spared, the stock market did react. The $XBI index of biotech companies was down by 4.3, perhaps also in reaction to the departure of Peter Marks from the FDA’s as director of the FDA’s Center for Biologics Evaluation and Research (CBER).
According to Bloomberg, the reprieve is by no means permanent and the president is planning to launch a “ 232 investigation” into pharmaceuticals among other sectors, which could lead to tariffs under the Trade Expansion Act, like the ones already effecting the automotive and aluminium sectors.
Trump’s latest mention of the industry today does not encourage optimism. At his National Republican Congressional Committee dinner speech, the message was clear: “we’re going to be announcing very shortly a major tariff on pharmaceuticals.”
And beyond finished pharmaceutical products, whether or not hiked duties will apply to them, there are other costs that stand to explode for pharma companies, like packaging, not to mention Active Pharmaceutical Ingredients (APIs). The US depends on China, and increasingly on India, for a large part of the APIs that go into its drugs. By some estimates, of the medications manufactured in the US, as much as 30 percent are made with imported APIs.
Potentially Staggering Implications
The United States relies heavily on pharmaceutical imports, which means that if increased tariffs are applied, the monetary impact will be huge. While the country exported USD 95 billion in pharmaceutical products, it imported more than double that amount last year, according to the investment research and management firm Morningstar. “With roughly USD 200 billion in pharmaceutical imports in 2024, a 10 percent tariff could amount to a USD 20 billion headwind across the industry, with the biggest firms seeing potential annual tariffs as high as USD 1 billion,” said the firm’s equity director Karen Andersen.
If APIs are included under hiked tariff policies, that will have a direct impact on drug prices, particularly on low-cost generics, and potentially on supply.
For Jeff Stoll, US national strategy life sciences leader at the consultancy KPMG, apart from rising costs, penalizing trade could have a broader effect on biopharma innovation and threaten the United States’ position as a global leader. “Our reimbursement system and how we pay for drugs, as much as people may criticize it or not like it—it is the fuel that enables the world to have innovative drugs that save lives,” he said. China and South Korea have become important centres of innovation and may stand to fill the gap if trade with the US becomes too restrictive.
Bringing Pharma Back Home?
The key objective behind Trump’s trade assault is to bring manufacturing back to the US. Several Big Pharmas already have manufacturing sites in the US, including AbbVie, AstraZeneca, Eli Lilly, Merck & Co. and Pfizer. Perhaps anticipating the tariffs arising from the Trump administration’s homeshoring priorities, Eli Lilly announced a USD 27 billion investment in four new US facilities in February. Johnson & Johnson also came out with USD 55 billion plans for American manufacturing sites over the next four years.
Building up manufacturing capabilities in the US could offset the risk of tariffs, and Pfizer CEO Albert Bourla recently made it clear that the pharma giant was willing to shift overseas production to US. “We have all the capabilities here, and the manufacturing sites are operating in good capacity right now,” Bourla affirmed. “But if something happens, we will try to mitigate by transferring from manufacturing sites outside to manufacturing sites here.”
Perhaps looking to turn the tide in pharma’s favour, Lilly’s chair and CEO, David A. Ricks and Amgen’s chairman and CEO Robert A. Bradway have both recently praised the tax cuts Donald Trump provided in the president’s previous term as an incentive for building US-based manufacturing. “He delivered the tax reform and we delivered the investment,” Bradway said.
Yet massively bringing production back to the US is easier said than done. Pharma supply chains are complex. They often involve APIs produced abroad because of the availability of necessary natural resources in other countries. Moreover, the cost of labour in the US is considerably higher than elsewhere. These added costs would most likely translate into higher drug prices.
A Blow for the EU
The European Union stands to take a big hit from increased tariffs. Not only were pharmaceuticals the top US import from the EU in 2024, they amounted to no less than USD 127 billion. Ireland in particular could be heavily penalised. The country has 22 FDA-registered drug manufacturing sites and many US companies, including Pfizer, Johnson & Johnson, Eli Lilly, Bristol-Myers Squibb, and AbbVie have set up manufacturing operations there. Accounting for 79 percent of the products the country exports to the US, pharmaceutical exports added up to some USD 64 billion last year.
Other EU countries would also see an important fallout from increased tariffs. France has 20 FDA-registered facilities, Germany 14 and Italy with 13. Belgium, where Pfizer has substantial manufacturing capacity, exported over USD 73 billion in pharmaceuticals in the first 10 months of 2024 and 24 percent of that went to the US. And, when it comes to APIs, 81 percent of non-US drug ingredients plants registered with the FDA are situated in Europe
In response to the looming threat of hiked tariffs, the European Federation of Pharmaceutical Industries and Associations (EFPIA), the organisation that groups European pharma innovators, called for action from EU policymakers in a meeting with European Commission president Ursula von der Leyen. “Unless Europe delivers rapid, radical policy change then pharmaceutical research, development and manufacturing is increasingly likely to be directed towards the US,” the EFPIA said in a statement.
