The proposal by President Donald Trump to implement tariffs on pharmaceuticals entering the United States could significantly impact pharmaceutical companies and American consumers, according to insights from experts speaking with Finance Newso.
Experts warn that these tariffs could disrupt the intricate pharmaceutical supply chain, potentially increasing drug prices domestically and worsening shortages of essential medications. Pharmaceutical manufacturers often depend on a global network of production facilities for various stages of drug creation.
Mariana Socal, a health policy professor at the Johns Hopkins Bloomberg School of Public Health, expressed concern about the rising cost of prescription drugs, noting that “we are already in a state where prescription drugs are unaffordable to many.” She cautioned that any alterations to trade or tariff policies that lead to increased drug costs could worsen the ongoing affordability crisis, which has plagued Americans for years.
This week, Trump reaffirmed his intent to impose “major” tariffs specifically targeting pharmaceuticals “very shortly.” This announcement caused a decline in stock prices for several drug manufacturers. While he suggested a temporary halt on steep tariffs affecting multiple countries due to market volatility, specific sectors—including pharmaceuticals—remain intact under these plans.
Despite exempting pharmaceuticals from broader tariffs announced last week, Trump maintains that such duties will incentivize drugmakers to shift their operations to the U.S., revitalizing domestic production that has dwindled in recent years.
However, experts are skeptical about whether these tariffs will motivate companies to increase U.S.-based drug manufacturing, as transitioning operations could incur billions in costs and take several years.
Experts note that the effects of tariffs would vary depending on the type of drug involved. Manufacturers of generic medications, which comprise around 90% of prescriptions in the U.S., might experience significant strains due to lower profit margins and reliance on ingredients sourced from countries like China and India. The imposition of tariffs could compel some generic drug manufacturers to exit the U.S. market entirely.
More broadly, pharmaceutical tariffs could hinder existing efforts to reduce healthcare costs in the U.S., where patients currently pay two to three times more for prescription drugs compared to individuals in other developed nations, according to a 2024 RAND report.
Drug shortages could get worse
The impending tariffs may exacerbate the ongoing medicine shortages in the U.S., which are attributed to factors such as manufacturing quality control challenges and spikes in demand. Currently, there are 270 active drug shortages nationwide, a figure that has remained stagnant over the last three quarters, as reported by the American Society of Health-System Pharmacists.
Some categories of drugs may be more susceptible to supply shortages should tariffs be enforced, according to Marta Wosińska, a senior fellow at the Brookings Institution. Generic sterile injectable medications, often used in hospitals, are already more vulnerable to shortages and have consistently faced supply challenges. This group includes vital products like IV saline bags, chemotherapy drugs, and lidocaine.
The manufacturing processes for these injectables are complex, and their low-profit margins may hinder manufacturers’ abilities to manage cost increases driven by tariffs.
Producers of generic sterile injectables might also struggle to pass on increased costs due to binding contracts with group purchasing organizations, which secure drug prices for hospitals and similar entities for extended periods. Wosińska indicated that if manufacturers cannot absorb these cost increases, they may be forced to withdraw from the U.S. market, further compounding drug shortages. Cutting costs might be another option, but this raises concerns about product quality and could lead to production slowdowns due to contamination issues.
In contrast, generic oral medications generally have less complex manufacturing processes and a more competitive market. These include widely used drugs such as statins, blood pressure medications, and metformin. According to Wosińska, the 2024 figures showed that roughly 187 billion generic drug tablets and capsules were dispensed at retail and mail pharmacies.
Wosińska noted that oral drugs typically function in a “spot market,” allowing pharmacies and buyers to swiftly shift among suppliers in response to disruptions caused by tariffs. Although prices may rise, manufacturers have greater flexibility to absorb costs compared to their injectable counterparts.
Costly medications could get pricier
The anticipated tariffs are expected to affect costly branded medications, which benefit from patent protections and do not face competition from generics, differently than generic drugs. Tariffs on imported medications from Europe could create the most significant impact, as many branded drugs are produced there and in the U.S.
“Branded products are primarily manufactured in the U.S. at around 50%, with about 35% imported from Europe,” noted EY’s Ural. He added that there is minimal manufacturing of these drugs in China or India.
Despite this, branded drugs usually feature higher profit margins and more stable supply chains than generic drugs. This positioning gives branded manufacturers a better capacity to absorb increased costs from tariffs or to transfer them onto consumers. As holders of a monopolized market, manufacturers could significantly raise prices without competition, raising concerns about the financial burden on American consumers.
Socal emphasized, “With tariffs, the question will become, how much higher prices are we going to pay for these branded products?”
Patients are likely to feel the financial impact of rising branded drug prices more acutely than any increases experienced with generic medications. A price hike on a branded drug would directly affect out-of-pocket costs for individuals with high-deductible insurance plans. A 20% coinsurance rate could mean higher monthly expenses for patients if tariffs take effect, as their share correlates directly with the drug’s price.
In contrast, since generics already have lower price points, a significant percentage increase would be less impactful on patients. Wosińska noted that many have fixed co-pay arrangements for these drugs.
Overall, the primary effect on patients may be indirect, with insurance premiums likely increasing as payers spend more on drugs. The ongoing debate revolves around whether manufacturers will opt to raise prices amidst mounting scrutiny from patients and lawmakers regarding the already inflated U.S. drug prices. Efforts by both the Trump and Biden administrations have targeted this issue.
In a note from March 28, Evercore ISI analyst Umer Raffat reported feedback from multiple pharmaceutical CEOs indicating that “they may have to pass on some of the impact [from tariffs] as a price increase.” However, implementing such increases risks intensifying criticism regarding the exorbitant prices of many U.S. drugs compared to Europe, potentially reigniting past initiatives from Trump’s administration to align U.S. prices with those in other developed countries.
Reshoring manufacturing won’t be easy
Concerns persist among Wall Street analysts over the feasibility of relocating pharmaceutical production back to the U.S. due to the high costs and time requirements involved. BMO Capital Markets analyst Evan Seigerman highlighted the complexities of global supply chains, particularly in the pharmaceutical sector, stating that “it’s not as simple as moving where someone screws in little screws to make an iPhone.”
He believes that the tariffs will likely do little to motivate a shift in manufacturing back to the U.S., as companies already possess substantial operations domestically. Most major pharmaceutical firms are anticipated to delay significant manufacturing decisions until Trump’s presidency concludes.
Some companies have already committed billions towards enhancing U.S.-based manufacturing. This year, both Eli Lilly and Johnson & Johnson announced substantial domestic investments aimed at boosting production, amounting to $27 billion and $55 billion, respectively.
Nonetheless, some drugmakers are pushing back against the tariffs, cautioning that they could adversely affect research and development efforts in the industry. Eli Lilly’s CEO Dave Ricks remarked in a recent interview, “We can’t breach those agreements, so we have to eat the cost of the tariffs and make trade-offs within our own companies,” predicting that research and development would be among the first areas to face cuts.
