The Trump administration will impose tariffs of up to 100% on certain imported pharmaceuticals, although several major exemptions apply. The measure aims to pressure drug manufacturers to increase production within the United States. Authorized by President Trump on Thursday, the new tariff applies to patented drugs produced in countries without a tariff agreement with the US, where the relevant manufacturing company has not signed a "most-favored-nation pricing agreement" with the government. According to a White House statement, tariffs on products from certain large companies will take effect within 120 days, while products from smaller manufacturers will be impacted after 180 days. The statement noted that for major economies that have reached agreements with the White House, the tariff ceiling for their imports will be set at 15%. This includes the European Union, South Korea, Japan, Switzerland, and Liechtenstein. In a separate agreement reached on Thursday, the United Kingdom agreed to double the proportion of government spending on new drugs as a share of GDP over the next decade, so imports from the UK will face lower tariffs. The White House stated that if companies commit to partial production in the US, the tariff rate on their imports will be 20%; if they reach a most-favored-nation agreement, the rate will drop to zero. This tax exemption will remain in effect until January 20, 2029. These charges fulfill the threat made by the president last autumn to impose 100% tariffs on branded or patented drugs unless companies shift production to the US. However, the measures also include significant exclusions that may dilute their impact. Most of the world's top pharmaceutical manufacturers, including Eli Lilly, have avoided punitive measures by reaching agreements with the government. Last summer, Trump sent letters to 17 companies with a series of demands, including lowering charges to the Medicaid program for low-income individuals, selling directly to American consumers, and ensuring that launch prices for new drugs in the US are on par with those in other developed countries, in exchange for tariff relief. This means the new tariffs will primarily impact smaller pharmaceutical companies and active pharmaceutical ingredient manufacturers. Veda Partners analyst Spencer Perlman estimates that of the total $274 billion in pharmaceutical imports in 2025, only about $12 billion worth of goods will be subject to the full 100% tariff. Industry groups representing biotechnology companies criticized the move. John Crowley, CEO of the lobbying organization BIO, stated in a release: "Any tariff on medicines in the US will increase costs, hinder domestic manufacturing, and delay the development of new therapies—none of which strengthen our national security." Crowley said tariffs would create financial risks for small biotech firms, which often lack the capital to build dedicated manufacturing facilities. A White House official indicated that the current tariff rate for the UK will be 10%, but it will drop to zero if GlaxoSmithKline finalizes a domestic manufacturing agreement with the US government. Overseas-produced generic drugs will also not be affected by the new tariffs; however, the White House official stated before the announcement that the measure signed by Trump directs the Commerce Department to reassess these products within one year, leaving room for potential future tariffs based on the level of production reshoring. Additionally, specialty pharmaceutical products, such as drugs for rare diseases or animal health, will be exempt if they come from countries with trade agreements or are needed to meet urgent public health demands. These new taxes result from an investigation initiated in April 2025 under Section 232 of the Trade Expansion Act. This clause allows the president to unilaterally impose tariffs on imports deemed a threat to national security. Industry groups expressed concern that this could cause significant supply chain disruptions, exacerbate shortages, and increase costs for Americans. This is the latest protectionist move by Trump. His trade agenda faced a setback in February when the Supreme Court ruled that his global tariffs violated the US Constitution. However, tariffs imposed on other industries under Section 232 were not affected by that ruling. On Thursday, Trump also took action to simplify and tighten metal tariffs. Trump has long criticized overseas drug production as a threat to national security and previously suggested tariffs as high as 200% to encourage domestic manufacturing. Subsequently, companies announced a series of multi-billion dollar investment plans in the US, but this was not enough to prevent the tariff measures based on the Commerce Department investigation. Pharmaceutical manufacturers will face a choice: absorb the tariff costs themselves or raise drug prices in the world's most expensive market. Stephen Ubl, President and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), stated that tariffs "will increase costs and could jeopardize the billions of dollars in US investments announced last year." The Swiss pharmaceutical lobbying group Interpharma has called on its government to negotiate an agreement similar to the UK's. It remains unclear when patients will feel the impact and to what extent. Americans already pay the highest drug prices globally. These prices are typically determined through a complex series of negotiations between insurers, pharmacy benefit managers (PBMs), and manufacturers, making immediate cost pass-through difficult. Ultimately, however, consumers may face higher prices through increased out-of-pocket expenses or rising insurance premiums.
Comments