Editor’s (re)View: Trump’s 200% tariff threat on pharmaceuticals represents new high, low
After a short respite, President Donald Trump this week again threatened to impose tariffs on pharmaceuticals imported into the United States. However, this time, the rate and stakes for the pharma industry are much higher, with the potential for the proposed U.S. trade policy to negatively impact global supply chains.
In March, Trump threatened to levy a 25% across-the-board tariff on foreign-made drugs. On Tuesday, he lobbed a bombshell that his administration intends to impose a 200% tariff rate on pharmaceutical imports, which would take effect in about a year to give drugmakers time to “get their act together” and bring their manufacturing to the U.S. before the tariff is levied.
Besides the obvious sticker shock of a 200% tariff, Trump’s notion of a grace period of about a year to ostensibly allow pharma companies to move their manufacturing operations to the U.S. is ludicrous. Building new facilities is expensive and time-consuming. According to one recent estimate, commercial-scale facilities can take two to five years to build from scratch with costs of approximately $2 billion — if not more.
“Moving pharma manufacturing domestically takes years, far longer than the grace period Trump is proposing,” Cyrus Fan, research analyst for GlobalData’s life sciences team, said in a statement. “Multiple pharma companies have pledged billions of dollars to increase their U.S. manufacturing presence since Trump started his second term in office. However, the industry continues to warn Trump that tariffs on medicines would be counterproductive and could increase the costs of medicines.”
Still, Trump on Tuesday said an announcement would be coming “very soon” from his administration regarding the 200% pharma-specific tariff. All of this trade policy drama comes as the Department of Commerce continues its investigation of the effects on U.S. national security of the importation of pharmaceuticals and pharmaceutical ingredients. The Department of Commerce probe is determining whether tariffs are necessary.
In addition to the threat of tariffs on pharmaceuticals, Trump’s “most favored nation” drug pricing policy is weighing on the industry. The Pharmaceutical Research and Manufacturers of America (PhRMA) warned that his executive order on most favored nation would jeopardize hundreds of billions of dollars in planned U.S. investments by its members.
For now, PhRMA has been silent on the 200% tariff threatened this week by Trump. In the meantime, drug manufacturers have been left in a climate of anxious anticipation and a heightened state of uncertainty. While Trump has previously pledged to impose steep tariffs, only to later back off, analysts expect the pharma reprieve to be short-lived.
William Blair analyst Max Smock in a Friday webinar called Trump’s threatened 200% tariff on pharmaceuticals “absurd” noting that it is a much higher rate “than what people were expecting.” At the same time, Smock said the silver lining for the industry is a year-and-a-half grace period, which will give pharma companies time to “adjust” to the tariffs rather than them being implemented immediately.
