The current state of pharmaceutical tariffs
Photo Credit: Getty
Background
Amid the Trump trade upheaval, pharmaceutical products receive different treatment than many other US imports. Pharmaceuticals are treated differently for reasons such as their distinct global dynamics, supply chain, and their political importance.
Before diving into the potential tariffs themselves, a brief summary of the pharmaceutical industry and its worldwide distribution will help provide the context to better understand the implications of tariffs.
The global pharmaceutical industry is complex, not just in the number of countries involved but the range of products, the sets of components, processing, and transportation needed to reach an end product for the patient, not to mention the many mechanisms by which governments price and distribute them within different countries.
As an example of product complexity, much of pharmaceutical manufacturing is of active pharmaceutical ingredients (APIs). These are the key ingredients that produce the medicinal effect. Ibuprofen, aspirin, and acetaminophen are APIs. Generic APIs (that is, APIs that are the core components for un-branded, generic drugs) are among the most basic pharmaceutical products that exist, and like other basic goods, they are produced in immense quantities in China and India.
The top producer of APIs, by value, is Switzerland. Switzerland, unlike China and India, specializes in higher cost APIs, meant for branded and specialty drugs rather than generics.
Beyond generic and branded APIs, there are also antibiotics, chemical intermediates, hormones, biologics, and monoclonal antibodies, among others. Pharmaceutical products can come in pill form, injectable liquid, topical ointment, inhalable spray, and other delivery mechanisms. The top producer of antibiotics is China. Ireland exports the most synthetic hormones, while the US is the second largest exporter.
The supply chain is so complex that the outcome of a new system of tariffs will have similarly complex effects. 90 percent of US prescriptions, by volume, are generic drugs, most of which are produced in India, as mentioned. The branded APIs coming from Europe represent 43 percent of branded all branded APIs.
The US itself produces 12 percent of total API volume domestically such as High-Potency Small-Molecule APIs (HPAPIs) and biologic APIs (monoclonal antibodies, recombinant proteins, etc.) and even higher percentages of IV fluids. These are produced more in the United States because the manufacturing process is more delicate and specialized and require higher levels of care. However, even though Europe, India, and the US produce significant amounts of APIs, China still provides many of the necessary constituents for API production.
In total, across all product categories, pharmaceutical products are the 5th largest category of goods that the US imports.
| 2023 Rank | Category | Total value of imports (in billions) |
| 1 | Electrical machinery | $477.1 |
| 2 | Machinery | $475.9 |
| 3 | Vehicles and automobiles | $329.6 |
| 4 | Minerals, fuels, and oil | $322.7 |
| 5 | Pharmaceuticals | $165 |
| Total | $3,826.9 |
Source: https://pangea-network.com/top-10-largest-us-imports-2024/
Tariffs to date
Fortunately, pharmaceuticals have escaped much of the tariff whirlwind so far. As part of his Liberation Day tariff announcement, pharmaceuticals were explicitly exempted. Two weeks after the initial barrage of tariffs, on April 14, the administration announced an investigation into the national security implications of pharmaceutical imports, which is separate from his broader tariffs. These investigations give the administration 270 days to determine the national security implications for specific products and produce a course of action. This will allow them to set tariff rates for pharmaceuticals at whatever level they deem necessary for national security.
Consequently, through August, pharmaceutical products have been left largely untouched by the tariff rates. For two of the largest producers of APIs—India and China—both subject to multiple tariff surges, the pharmaceutical products have remained exempt.
This might help explain why, while overall prices across all goods and services have risen by 1 percent in President Trump’s first six months in office, prescription drug prices have fallen by 0.8 percent.
Below is a table summarizing the state of tariffs for the countries that are most noteworthy as especially entangled in the tariffs. Several of these countries are parties to a 1994 WTO agreement to eliminate tariffs on pharmaceuticals. For these countries, the final tariff rate will likely be the same for all of them, but will also likely be determined by the Section 232 investigation which will set global pharmaceutical tariffs at the sectoral level instead of country-by-country.
| Country | Baseline rate | Rate on pharmaceuticals | Notes |
| India | 50 percent | 0 percent | Exempted from IEEPA / Liberation day tariffs |
| China | 30 percent | 0 percent | Exempted from IEEPA / Liberation day tariffs |
| Japan | 15 percent | TBD | Fall under WTO agreement |
| UK | 10 percent | 0 percent | Subject to further negotiation |
| EU | 15 percent | 15 percent | 15 percent for branded drugs; generic drugs TBD |
| Switzerland | 39 percent | 0 percent | Pharmaceuticals exempted |
| South Korea | 15 percent | TBD | “Not treated unfavorable compared to other countries”; fall under the WTO agreement |
| Canada | 0 for USMCA goods; 35 percent for others | 0 | Covered under USMCA |
| Mexico | 0 for USMCA goods; 25 percent for others | 0 | Covered under USMCA |
| Brazil | 50 percent | ? | Pharmaceuticals not exempted from the 40 percent emergency tariff. Unclear whether reciprocal 10 percent rate includes them. |
What comes next?
On top of individual trade deals announced with other countries, a significant factor in pharmaceutical tariffs will be the resolution of the Section 232 investigation. While the deadline to resolve would be 270 days after its initiation, which would be in January 2026, Trump has indicated that he will make an announcement much sooner than that.
The outcome of this investigation could set a tariff rate for pharmaceuticals higher than the 10 percent or 15 percent baseline he has embraced for all goods. If that’s the case, then the signatories of the WTO agreement would expect to be subject to the lowest tariff rate of the other signatories. Currently, the highest potential tariff for pharmaceuticals for these countries seems to be 15 percent, as per the EU agreement.
Countries that didn’t sign the WTO agreement will face whatever tariff rates President Trump determines through the 232 investigation. The rates may be uniform, may be country-specific, or might be determined by individual trade deals. President Trump has also indicated that the outcome of the 232 investigation will call for a gradual ramping up of tariffs over several years, perhaps ultimately climbing as high as 250 percent, a figure with no clear precedent in US history. Even the most protectionist acts only set tariff rates at around 50 percent.
After any tariff rates are determined either through negotiation or investigation, that rate will likely end up in the courts. Other countries may challenge the tariffs via the WTO, although given the non-functional state of the WTO’s appellate process, that will likely stall out. There are already ongoing lawsuits for the Liberation Day tariffs that challenge the basis for imposing those tariffs. Section 232 tariffs will use different powers and may be subject to their own set of lawsuits. In addition to countries and domestic purchasers, the pharmaceutical companies may sue the government as well.
In addition to the tariffs, Trump is also pursuing his Most Favored Nation policy, in which he is compelling drug companies to sell drugs in the US at prices no greater than they sell them for in other developed countries. Congress may start looking at greater regulation of Pharmacy Benefit Managers (PBMs), whose primary mission is to keep drug prices low. While many people believe that they are actually driving prices up, in the last ten years, drug prices have risen more slowly than other goods. Additional regulation will likely only serve to increase costs overall.
Given all the pressures being put on the drug industry right now—the tariffs, the most favored nation executive order, the assault on PBMs—the price-increasing pressures will likely offset any price decreasing effects. While drug prices have risen more slowly than the rest of goods and services over the past ten years, this is a trend that is unlikely continue through the end of Trump’s second term, and American consumers will be left with even more expensive medicine.