Trump’s huge tariffs on some drugmakers could end up backfiring

Drug Tariff Plan Raises Fresh Questions About Costs, Supply and Innovation

Sandego.net – A new US tariff policy aimed at pharmaceutical imports is set to begin Tuesday, imposing a 100% duty on certain patented medicines and drug ingredients. The measure is intended to encourage more manufacturing inside the United States, but its limited reach and uneven effect on companies could create consequences far from that objective.

Smaller biotechnology and pharmaceutical businesses are expected to face the greatest pressure. Many lack the financial resources, production networks and negotiating leverage available to the industry’s largest manufacturers. Instead of quickly moving operations to American facilities, some may confront sharply higher costs, pursue mergers or sell to larger competitors.

That could matter directly to patients, particularly those who rely on treatments not supplied by major drug companies. Fewer independent manufacturers may mean fewer medicines in development or available to specialized groups of patients, while the cost of affected products could rise.

Wide exemptions narrow the policy’s target

The headline 100% rate does not apply across the pharmaceutical sector. Large companies that entered “Most Favored Nation” agreements are excluded from those levies. In return, those manufacturers have pledged to expand US production and offer lower-priced medicines through Medicaid and TrumpRx, the administration’s direct-to-consumer clearinghouse.

Those larger companies produce most branded drugs, significantly limiting the number of products exposed to the highest tariff. Generic medicines, drugs for rare diseases known as orphan drugs, and several specialized therapies also receive broad exemptions.

Trade arrangements further reduce the scope. Patented pharmaceutical products from the European Union, Switzerland, Japan and South Korea will face a 15% duty under existing bilateral agreements. Products from the United Kingdom are not subject to the new levies. Companies with an agreement to increase US manufacturing will be charged a 20% rate instead.

As a result, only a relatively small portion of pharmaceutical makers and products will be subject to the full 100% tariff. Still, the affected group is meaningful: an initial Brookings Institution review identified more than 100 drugmakers with at least one nonexempt medicine.

Contract manufacturing creates a difficult obstacle

A large share of those companies do not own production plants. They depend on contract manufacturers to produce their medicines, a common arrangement that can allow smaller businesses to focus their resources on research, testing and commercialization.

But expanding domestic output through those partners may not be simple or affordable. Marta Wosinska, a senior fellow at Brookings, said US contract-manufacturing capacity is already highly competitive, leaving smaller firms to compete for scarce production space at a substantial cost.

“Their pockets are not as deep,” Wosinska said of the smaller companies.

For a company with limited capital, building a US facility can require years of planning, regulatory work and major investment. Securing new contract capacity may be faster than building a plant, but demand for those facilities can make the alternative costly. The tariff could therefore leave some manufacturers with a choice between absorbing higher import expenses, raising prices, restructuring their business or seeking a buyer.

Wosinska said companies unable to reach arrangements with the White House may ultimately need to sell themselves to larger participants in the industry. Consolidation can help a company gain manufacturing scale, but it may also reduce the number of independent businesses pursuing distinct treatments.

Patients and drug development may feel the effects

Mollie Sitkowski, an international trade lawyer with Faegre Drinker, expects prices for medicines made by affected companies to increase. The burden could be especially pronounced for patients whose conditions are not addressed by the largest pharmaceutical manufacturers and who depend on therapies developed by smaller businesses.

The concerns extend beyond current medicines. Smaller biotechnology companies often play an important role in discovering and advancing potential therapies. If more capital is redirected toward tariff costs or manufacturing changes, less may be available for research and development. Sitkowski also anticipates fewer new medicines could reach the market in the years ahead.

The Biotechnology Innovation Organization, which represents small and midsize drug companies, warned the Commerce Department earlier this month that the policy could undermine the firms it is meant to support.

“Tariffs that punish U.S. innovators are counterproductive and risk slowing the investment and innovation needed to be successful.”

John Crowley, BIO’s chief executive, argued that duties on medicines could increase expenses, complicate efforts to build US capacity and draw money away from scientific work.

“The reality is that tariffs on America’s medicines will raise costs, impede domestic manufacturing, and divert scarce resources away from research and development critical to maintaining American biotech leadership,” Crowley wrote.

A shift from a long-standing trade approach

Pharmaceuticals had largely avoided major tariffs for decades under an international framework intended to keep essential medicines moving across borders. The administration announced this latest tariff plan in April, after President Donald Trump had repeatedly indicated that drugmakers would become a target of his broader trade agenda.

The policy reflects an effort to use trade pressure to encourage domestic production. Its outcome, however, may depend on whether affected businesses can obtain American manufacturing capacity without jeopardizing their finances or research programs.

For consumers, the central issue will be whether the exceptions and negotiated agreements protect access to widely used medicines while avoiding disruption for less common treatments. For smaller drugmakers, Tuesday’s deadline creates a more immediate test: whether they can adapt to a new import cost without sacrificing the products and innovations that brought them to market.