Report: Pharmaceutical tariffs will upend prices, supply

A new CEI report takes a close look at the complex, worldwide pharmaceutical supply chain to anticipate how forthcoming Trump tariffs might increase prices and cause supply problems.

“The Trump administration’s economic and trade policies will disrupt pharmaceutical manufacturing, causing unpredictable and damaging effects on the American economy and people,” said Jeremy Nighohossian, health care policy expert and author of the report, I, Pharmaceutical: The role of trade and tariffs in the drug industry.

“The administration may want to shift manufacturing to the United States, but in reality, the larger the shift, the greater the cost will be,” Nighohossian predicts. “The biggest loser will be Americans themselves, needlessly forced to pay higher prices for medicine.”

Key takeaways from the report:

• The supply chain is complicated. Active ingredients (APIs) for brand-name drugs are primarily produced in Europe and North America, whereas APIs for generic drugs are predominantly produced in Asia, and India. China is the sole source of APIs for certain essential generic medicines and a major supplier of precursor chemicals.
• Free trade distributes manufacturing efficiently, making everyone better off. The US offshores production and imports large quantities of lower-value products, freeing US manufacturers to produce higher-value products. That means a global trade system with the US atop the value pyramid, driving innovation, with basics are imported from less developed manufacturing economies.
• People may think imports mean fewer jobs for Americans, but it often means different (and better) jobs. Employment in pharmaceutical manufacturing has risen twice as fast as the population since 1987.
• The price of prescription drug prices has fallen by 0.8 percent during Trump’s first six months in office – thanks in part to being untouched by tariff rates until now.
• Not much production will shift to the U.S., except maybe, eventually, some branded drugs that have higher profit margins.
• Even if employment in drug manufacturing increases, it won’t be easy to get skilled workers without hiring them away from other industries, meaning additional pharmaceutical production will mean less production of something else.
• Drugs will cost more even if produced domestically. If it were less costly to produce in the US, companies would already be doing so without tariffs.

View the report, I, Pharmaceutical: The role of trade and tariffs in the drug industry, by Jeremy Nighohossian, a Senior Fellow and Economist at the Competitive Enterprise Institute.