Tariffs On Medicines Will Cripple Manufacturing

The second Trump administration may soon reverse a long-standing pillar of U.S. trade policy -- one that the first Trump administration upheld even in the midst of a trade war.

White House officials are planning to impose tariffs on imported pharmaceuticals and their ingredients, which have traditionally been off-limits in trade wars.

They hope these import levies will reduce Americans' reliance on foreign drugs and strengthen domestic manufacturing. But in reality, tariffs will only lead to more drug shortages, higher prices for patients, and a weaker, less secure supply chain.

For decades, the United States and most other developed nations have kept medicines tariff-free, recognizing their essential role in public health and national security. Even during periods of global trade friction, both Republican and Democratic administrations maintained this exemption under the World Trade Organization's "zero-for-zero" initiative.

That approach has spurred steady investment in the U.S. life sciences sector.

Today, the U.S. biopharmaceutical industry supports nearly 5 million jobs and generates over $1.65 trillion in annual economic output. It's also one of the largest components of America's manufacturing sector, boasting more than 1,500 plants nationwide. That number could soon grow considerably, given that drug companies have recently announced well over $200 billion in new U.S. investments.

Those plans could change, though, if tariffs make such investments financially unviable.  

Pharmaceutical supply chains are uniquely complex and global in nature. While there has been much discussion around sourcing of pharmaceutical ingredients from China, the reality is that 53% of the active pharmaceutical ingredients in medicines consumed in the United States are produced domestically, while 33% come from Europe.

Transitioning even one ingredient to a new supplier requires extensive validation, stability testing, and FDA approval. Building or retrofitting a facility can take five to 10 years and cost upwards of $1 billion.

These are not changes that can happen overnight. And in the meantime, U.S. factories and distributors would have to either eat the costs of the tariffs, or raise prices on patients and insurers.

Nor would these tariffs effectively target adversaries. According to an Ernst & Young analysis, nearly three-quarters of America's pharmaceutical imports come from trusted European allies -- primarily Ireland, Switzerland, and Germany. Taxing their products would only strain alliances and raise production costs, pushing some manufacturers to double down on cheaper but less secure supply chains elsewhere, including in China.

If faced with steep import duties, some manufacturers may be forced to exit the market altogether, deepening already critical drug shortages. America is already facing 270 drug shortages -- only slightly down from the record high of 323 in the first quarter of 2024.

Many of these medications are generics, with ingredients sourced from countries like China and India. Tariffs will drive more of these medicines into short supply.

To meaningfully reduce targeted generic drug dependencies on China and increase supply chain resiliency, the United States should consider tax and other incentives to increase investment in domestic infrastructure, as well as shore up relationships with trusted trade partners.

Rather than pursuing a self-defeating tariff strategy, the administration should focus on policies that strengthen domestic capacity in the long term. That means not merely exempting drugs from tariffs, but also ensuring robust FDA resources to ensure timely drug approvals and facility inspections, repealing harmful drug price controls that stifle innovation and investment, strengthen intellectual property rights and prioritize IP enforcement, and consider other policies to further expand supply chain resiliency.

The right way to further secure America's medicine supply is not to wall it off from our allies or tax it into scarcity. It's to foster an innovation-friendly environment where U.S.-based manufacturing can thrive -- and where patients can reliably access the treatments they need.

Tariffs on medicines won't make America safer. They'll make it sicker, poorer, and less prepared.