Editor’s (re)View: Will tariffs bring pharma manufacturing back to the US?

The Trump administration’s announcement this week that the Department of Commerce has launched an investigation into U.S. reliance on pharmaceuticals and pharmaceutical ingredients made in other countries is widely seen as the precursor to pharma industry-specific tariffs, with the goal of encouraging domestic manufacturing.

The launch of the Department of Commerce probe comes on the heels of President Donald Trump’s threat last week to impose “major” tariffs on pharmaceuticals, promising that an announcement would be coming “very shortly” from his administration and predicting that drug manufacturers “will come rushing back into our country.”

As Jefferies analyst Michael Yee commented in a note to investors last week, the general goal seems to be to “push biopharma” to bring manufacturing from overseas to the U.S. However, Yee contends that it remains unclear how companies would react to tariffs.

Johnson & Johnson CEO Joaquin Duato this week said that tax policy, not tariffs, are the most effective way for Trump to bring pharmaceutical manufacturing back to the U.S. Duato credited the passage of the 2017 Tax Cuts and Jobs Act in the first Trump administration for J&J’s “already elevated commitment” to America’s economy.

Among the stated goals of the Department of Commerce’s probe announced this week is to assess whether tariffs are necessary to protect national security. While the investigation will determine the level of U.S. reliance on finished generic and non-generic drug products, active pharmaceutical ingredients (APIs), and key starting materials, the industry is quite aware of how dependent this country is on foreign suppliers.

An analysis released on Thursday by US Pharmacopeia shows that more than half of the APIs for prescription medicines in the U.S. come from India and the European Union (EU). The report found that just 12% of total API volume is made in the U.S. — excluding IV fluids, such as saline — while China only contributes 8% of the total volume of APIs. US Pharmacopeia noted that the “major hubs” of production are India and the EU, with European countries like Norway and Switzerland cited as important contributors.

Generic drugs, which make up 90% of prescription volume in this country, come primarily from India — while 43% of branded pharmaceutical API comes from the EU, according to the report.

The Association for Accessible Medicines (AAM), which represents the generics and biosimilars industry, this week again warned that that U.S. tariffs on generic drugs would increase the risk of drug and API shortages.

CEO John Murphy III in a statement said that AAM looks forward to working with the White House and the Department of Commerce to “engage constructively on ways to incent more domestic investment in the medicines supply chain.” However, Murphy said tariffs will “only amplify the problems that already exist in the U.S. market for affordable medicines.” 

Marta Wosińska, a senior fellow at The Brookings Institution, made the case in a research article late last month that while Trump’s tariffs could provide a strong incentive for increasing U.S. manufacturing of brand-name drugs, they will not for older, off-patent generic drugs. To onshore generic drug production, the Trump administration will need to deploy tools other than tariffs such as direct financing, according to Wosińska.

During a webinar this week, Wosińska reiterated that she doesn’t expect to see onshoring of generic manufacturing due to tariffs. Despite recent announcements from Eli Lilly, J&J, and Novartis that they are making multi-year investments in U.S. production, Wosińska described it as a “really difficult calculus” for brand name drugmakers.

While Wosińska acknowledged that Big Pharma companies have been recently making these high-profile announcements for political, not just economic reasons, she questioned the wisdom of making investments of tens of billions of dollars in U.S. manufacturing over several years. 

“Explain the math to me because I don’t understand it,” Wosińska said. “It’s one thing if you see a law that’s passed,” she exclaimed. “Are these tariffs going to be here not just three to five years from now, are they going to be here a month from now?”