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

Drug Tariffs Raise Questions About Costs, Supply and Innovation

Healfromzero.com – A new 100% tariff on selected patented pharmaceutical products and ingredients is set to begin Tuesday, putting renewed pressure on drugmakers that rely on overseas production. President Donald Trump has framed the policy as a way to encourage more manufacturing inside the United States, but many specialists believe the companies most exposed may be the least able to respond by quickly building domestic capacity.

The measure does not affect the entire pharmaceutical market equally. Large manufacturers with “Most Favored Nation” agreements are excluded from the highest tariff level. In exchange, those companies have pledged to expand US production and offer lower-priced medicines through Medicaid and TrumpRx, the administration’s direct-to-consumer clearinghouse. Because these firms produce most brand-name medicines, the broadest part of the market will face limited direct exposure.

Generics, orphan drugs used for rare diseases and several specialty medicines are also mostly outside the tariff’s reach. Existing trade arrangements further reduce the impact: patented pharmaceutical goods from the European Union, Switzerland, Japan and South Korea will generally receive a 15% rate, while products from the United Kingdom will not face the new levies. Businesses with an agreement to increase US production will be subject to a 20% tariff instead.

Those carve-outs mean the 100% rate will apply to a relatively narrow set of manufacturers and products. Still, that group includes more than 100 drugmakers producing at least one medicine that does not qualify for an exemption, a preliminary Brookings Institution review found.

Smaller Companies Face the Hardest Adjustment

The companies left exposed are often small or midsize pharmaceutical businesses, including firms that depend on outside contractors rather than operating their own factories. That business model can make a sudden manufacturing shift exceptionally difficult. Moving production is not simply a matter of finding available space; drug production involves specialized equipment, qualified suppliers, regulatory requirements and reliable access to ingredients.

Marta Wosinska, a senior fellow at Brookings, said many of the affected companies have no production facilities of their own. US contract-manufacturing capacity is already heavily contested, making it expensive for smaller firms to relocate output domestically.

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

For companies without the financial resources to absorb higher import costs or finance new US production, selling to a larger competitor may become the only practical option if they cannot secure an agreement with the White House. Consolidation could help some products remain available, but it may also reduce the number of independent companies developing and supplying medicines.

That possibility creates a tension at the heart of the policy. The administration’s goal is to promote domestic manufacturing and lower drug prices, yet the tariffs could raise costs for a segment of the industry that lacks the scale of major pharmaceutical groups. Those costs may be passed through the supply chain and ultimately reach patients.

Patients Could See Fewer Options and Higher Prices

The greatest consequences may be felt by patients whose conditions are not served by the largest pharmaceutical manufacturers. Smaller companies frequently make drugs for narrower patient populations, so disruptions affecting them can matter disproportionately to people with limited treatment choices.

Mollie Sitkowski, an international trade lawyer with Faegre Drinker, said prices for these medications are likely to increase. She also expects the pace of new drug launches to slow in the years ahead. When smaller drug developers must divert money to tariffs, production arrangements or corporate restructuring, less capital may remain for research, clinical development and bringing new treatments to market.

That concern is especially significant in biotechnology, where smaller firms often pursue specialized medicines and early-stage scientific ideas. Not every project becomes a commercial product, and development requires sustained investment long before a medicine reaches patients. Added import costs can complicate those calculations, particularly for businesses with a small portfolio of products.

The Biotechnology Innovation Organization, which represents smaller and midsize drugmakers, warned the Commerce Department this month that the tariff approach could weaken the very domestic innovation policymakers want to strengthen.

“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 the costs would extend beyond individual companies and affect the wider US biotechnology sector.

“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 Policy Shaped by Exceptions

Trump announced the pharmaceutical tariffs in April after repeatedly signaling that the industry would become a trade-policy target. Pharmaceutical goods had avoided many such levies for decades, in part because an international framework was intended to help essential medicines move across national borders without major trade barriers.

The numerous exemptions, lower rates and negotiated alternatives now built into the policy are likely to limit its overall reach. Yet they also leave a more concentrated burden on manufacturers that have not obtained special agreements, do not produce exempt medicines and lack the resources of global drug companies.

The key question will be whether those firms can find affordable domestic manufacturing capacity, negotiate modified terms or absorb the added expense without cutting back on products and research. If they cannot, the tariff may reshape a small but important portion of the medicine market through higher prices, fewer independent developers and potentially fewer treatments for patients who rely on specialized drugs.