Pharmaceutical Industry Hit by Unpredictable Tariff Policies in the United States

Since taking office, U.S. President Donald Trump has made tariffs a central tool of American foreign and trade policy. The simplified logic behind setting initial tariff rates has confused trade partners, while subsequent tariff fluctuations and legal challenges continue to unsettle businesses and governments around the world.

In July this year, President Trump threatened to impose a 200% tariff on drug imports, similar to the comprehensive tariffs the United States previously implemented on steel and aluminum. Although this measure has not been enacted yet, the imminent threat and the uncertainty caused by the erratic enforcement of tariffs have already impacted trade and investment in the industry. Many companies have announced new investments in the United States, but there are also signs that many companies are taking a wait-and-see approach before making investment decisions, having previously tried to increase exports to the U.S. in advance.

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Tariff threat triggers export.

Pharmaceutical exports from Ireland have increased significantly this year. Eimear O'Leary, Communications Director of the Irish Pharmaceutical Healthcare Association (IPHA), stated: "Since January, and even more since the threat of tariffs emerged in March, exports to the United States have seen considerable growth." The association's members include Pfizer, GlaxoSmithKline, Novartis, Amgen, Johnson & Johnson, and Bristol-Myers Squibb. Official statistics show that pharmaceutical exports to the U.S. from January to May this year have increased by 153%, reaching 70.8 billion euros (equivalent to 61.3 billion pounds), a substantial rise compared to the same period last year.

Although pharmaceutical tariffs were originally zero, pharmaceutical companies have consistently invested heavily in Europe, especially in Ireland, Belgium, Denmark, and Switzerland. In particular, Ireland has been committed to attracting foreign direct investment in the pharmaceutical sector for decades, with investments surging in recent years. Matt Moran, an Irish pharmaceutical consultant and former director of BioPharmaChem Ireland, stated: "In the past 10 years, it is conservatively estimated that 15 billion euros have been invested in Ireland, much of which has been used for large molecule facilities."

O’Leary added, “In 2024, approximately €100 billion worth of pharmaceuticals will be exported from Ireland, with €44 billion going to the United States.” Against this backdrop, when European Commission President Ursula von der Leyen met with Trump in Scotland on July 27 and announced an agreement under which the US would impose a 15% tariff on most EU goods, including pharmaceuticals, the industry paid close attention.

This is a framework agreement—detailed trade agreements usually require years of negotiations. In May this year, the UK and the US announced a similar “Atlantic Declaration for Economic Prosperity,” and in June, the White House stated that, provided the UK adheres to “certain supply chain security standards,” the US would commit to preferential agreements on pharmaceuticals.

However, the prospects of these agreements have been affected by the U.S. government's investigation of pharmaceuticals and pharmaceutical raw materials under Section 232 of the Trade Expansion Act of 1962. The results of the investigation have not yet been released, but the law grants the President the authority to impose tariffs on goods deemed essential to national security.

On August 29, the situation became further complicated when a federal court ruled that the current comprehensive tariffs in the United States were illegal. The court rejected the Trump administration's claim that the International Emergency Economic Powers Act granted the president the authority to impose tariffs. These tariffs will remain in place until mid-October to allow time for an appeal to the Supreme Court. The final legality decision could take several months.

A 15% tariff might be acceptable to the EU, but the significant uncertainty and unpredictability of U.S. tariff policy are causing more problems for the industry. John McHale, an economist at the National University of Ireland, Galway, stated: "The biggest risk lies in the arbitrariness of U.S. tariff policy setting. The 15% tariff imposed on the EU might be reconsidered."

Revitalizing the American Pharmaceutical Manufacturing Industry

The United States imposes tariffs with the aim of reducing its goods trade deficit and encouraging industries such as pharmaceuticals to bring more production back to the country. A series of investment announcements by major pharmaceutical companies in the U.S. this year appears to suggest that this strategy is working. Among them is AstraZeneca's commitment to invest $50 billion by 2030, creating tens of thousands of high-skilled jobs, including a $3.5 billion manufacturing facility in Virginia announced last November.

In the meantime, Eli Lilly announced in February that it would double its manufacturing investment in the U.S., bringing the total investment since 2020 to over $50 billion, with three out of four plants set to produce active pharmaceutical ingredients for small molecule drugs. In March, Johnson & Johnson announced that it would invest over $55 billion in the U.S. over the next four years. In April, Roche pledged to invest $50 billion in the U.S. over the next five years, including building new plants in Indiana, Pennsylvania, Massachusetts, and California. Novartis stated that it would invest $23 billion in 10 plants in the U.S., including seven new projects.

However, there are still doubts about whether these commitments can be fulfilled. McHale points out, "There is a huge gap between companies announcing something and actually changing their fundamental strategies." Some also believe that tariffs can only prompt the reshoring of manufacturing to the U.S. in certain areas. Keith Maskus, an international trade expert at the University of Colorado Boulder and former chief economist at the U.S. State Department, stated, "You might see some reshoring in high-tech equipment and certain high-value chemical and pharmaceutical sectors to avoid tariffs." But he warned that this might not lead to job growth. "If you are a U.S. manufacturer facing higher tariffs and costs, you might be more inclined to invest in automation."

When choosing investment locations, tariffs are not the only consideration. Industry representatives point out that Ireland is attractive to the biopharmaceutical industry due to its favorable tax regime, consistent government policies, strict regulatory compliance, educated English-speaking workforce, and ease of access to the EU market. McHale stated, "Pharmaceutical companies cannot quickly relocate and rebuild their manufacturing facilities in the short term."

Building a new factory is also a lengthy process. Moran said, “You need to construct, certify, and validate. It takes four to five years to bring a product to market. You might try to speed things up, but the pharmaceutical industry and ‘shortcuts’ are not compatible.”

The potential consequences of tariffs have raised concerns in Ireland and elsewhere. O’Leary stated that every time the U.S. talks about tariffs, IPHA receives numerous calls. "The level of uncertainty is worrying," she added. "It could lead to disruptions in the global supply chain… it might affect the raw materials for pharmaceuticals exported from Ireland to the U.S." Moran believes that tariff fluctuations may have already frozen new investment decisions in Ireland, although the industry will continue to advance existing projects.

Other key players in global pharmaceutical manufacturing are equally on edge. On April 2 this year, Trump imposed a 27% tariff on Indian imports, and on August 30 raised tariffs on certain goods to 50% as a punitive response to India’s purchase of Russian oil. So far, pharmaceutical and petroleum products have not been included, but if the situation changes, the consequences could be severe. India is the world’s largest producer of pharmaceutical active ingredients and supplies a large quantity of generic drugs to the United States—accounting for about one-third of the country’s total exports. Maskus noted, “A major issue is whether Indian producers can find alternative export markets for these mainly generic products.”

Steven Durlauf, an economics professor at the University of Chicago, stated that such tariffs would also harm the United States. In the U.S., it is difficult to profitably relocate the generic drug industry back domestically—the country has already experienced shortages of certain low-cost, off-patent drugs. While the market may accept price increases for patented drugs, there is much less room to raise prices for low-cost generics with lower profit margins. The latest data show that in 2024, the U.S. imported over $12 billion worth of pharmaceuticals from India. India dominates the U.S. generic drug market, accounting for nearly half of all generic prescriptions in some years.

The situation is further complicated as various industries and even companies are negotiating specific exemptions. For instance, market analysts were surprised by the news that NVIDIA and Advanced Micro Devices (AMD) could export certain types of chips to China after paying 15% of their revenue to the U.S. government.

This may explain why many industries have not publicly complained about tariffs. Maskus said, "There is a long line of American producers and manufacturers... waiting to get into the White House to negotiate with the president. They're keeping a low profile to see what they can get through this approach."

Regardless of whether tariffs are retained, many economists predict that uncertainty will be detrimental to both the U.S. and global economies, ultimately affecting the vote. Durlauf stated: "Tariffs are bad for economic growth because they raise prices and increase production costs in the United States. Their implementation is extremely capricious, and uncertainty is the enemy of economic prosperity." If the U.S. experiences a slowdown in economic growth and a rise in inflation, Congress may shift toward the Democratic Party in the 2026 midterm elections, creating pressure to change tariff policies.

Despite the grand scale of new investment projects in the United States, many companies may prefer to wait and see rather than bet on the U.S. maintaining a long-term high tariff policy due to the significant uncertainty in the country's long-term trade policy.