US President Donald Trump announced a new round of tariffs on Thursday. He said unless pharmaceutical companies are constructing a manufacturing unit in the United States, brand-name or patented pharmaceutical items will be subject to a 100 percent tariff beginning on Oct 1.
For months, Trump has pledged to impose tariffs on pharmaceutical imports, which were exempt from levies during his first term. The president views tariffs as a means of strengthening the supply chain for necessary medications and exerting pressure on pharmaceutical companies to increase manufacturing in the US.
Additionally, Trump has used tariffs as a means of delivering on his promise to reduce medicine prices, but analysts think it is unlikely to occur.
Hundreds of billions of dollars have been committed by pharmaceutical companies to establish or grow US manufacturing operations in the upcoming years, demonstrating that they have taken Trump’s tariff threats seriously. Shortly after announcing that it would build a $5 billion plant outside of Richmond, Virginia, Eli Lilly this week revealed that it would develop a $6.5 billion manufacturing unit in Houston.
Trump outlined the necessary steps to circumvent the tariffs in a Truth Social post on Thursday.
“‘IS BUILDING’ will be defined as, ‘breaking ground’ and/or ‘under construction. There will, therefore, be no Tariff on these Pharmaceutical Products if construction has started,” Trump posted on Truth Social.
If the pharmaceutical companies aren’t already building elsewhere in the US, it’s unclear if these assurances will be sufficient to avoid the tariffs because it can take time. The plants may not be operating for up to five years, according to Eli Lilly.
The impact of the taxes might be lessened by that distinction.
In a note to clients, Mizuho analyst Jared Holz said, “The actual comment from the President is direct but its impact may be somewhere between nebulous and negligible. All major players have some production presence domestically and almost all have announced increased investment directly tied towards local manufacturing.”
Medicines have previously been protected from tariffs due to rising costs and shortage concerns, according to a leading pharmaceutical industry association.
“PhRMA companies continue to announce hundreds of billions in new US investments thanks to President Trump’s pro-growth tax and regulatory policies. Tariffs risk those plans because every dollar spent on tariffs is a dollar that cannot be invested in American manufacturing or the development of future treatments and cures,” said Alex Schriver, senior vice president at the Pharmaceutical Research and Manufacturers of America (PhRMA), said in a statement.
David Risinger, an analyst with Leerink Partners, wrote in a note to clients that many larger pharmaceutical companies should not be impacted by the tariffs because they are currently working on construction projects. However, it is challenging to identify which smaller producers might be at risk.
According to experts, the actions taken by the pharmaceutical industry are unlikely to reduce America’s dependency on overseas suppliers for essential pharmaceutical ingredients and medications. Ingredients and final medications are produced in numerous locations worldwide, making the pharmaceutical industry a global web.
Interestingly, Trump made no mention of imposing tariffs on generic pharmaceutical imports, which analysts have warned could exacerbate the medicine shortfall. Because of their far lower profit margins, generic medication manufacturers would find it considerably more difficult to withstand tariffs. Alternatively, companies can decide to discontinue their product sales in the US.
The results of the Trump administration’s inquiry into the national security implications of drug imports, which is anticipated to pave the way for more extensive tariffs on the sector, have not yet been made public. Trump announced the terms of an agreement with the European Union in late July, which called for a 15 percent import tariff on pharmaceuticals, with generic medication exclusions.
Last month, the president told in an interview with CNBC that he would impose taxes on medication imports of up to 250 percent, but that they would increase gradually.
Apart from tariffs on pharmaceutical products, Trump also imposed a 25 percent tariff on heavy vehicles manufactured outside of the US, a 30% tariff on upholstered furniture and a 50% tax on kitchen cabinets and bathroom vanities on Thursday.