Recent proposals by US President Donald Trump to impose tariffs on pharmaceutical imports are likely to bring shocks to the supply of generic drugs, on which millions of Americans depend. Rather than fostering an increase in domestic production, these tariffs could drive up costs for those who need them most and exacerbate drug shortages.
Trump warned drugmakers in a private meeting that tariffs are coming and said companies should hustle to move overseas manufacturing to the US, Bloomberg reported on Saturday, citing two people familiar with the conversation.
The meeting came just days after Trump said that he intended to impose 25 percent tariffs on autos and similar duties on semiconductors and pharmaceutical imports, Reuters reported.
While the proposed tariffs may appear to encourage the pharmaceutical industry to produce within US borders, Trump’s attempt to use tariffs to reverse globalization in the generic drug industry is not only economically misguided but also risks exacerbating healthcare costs, disrupting global supply chains and ultimately harming American consumers.
The tariff policy approach will mostly likely hit generic drugs, which account for about 90 percent of all prescriptions filled in the US, according to the Association for Accessible Medicines, a trade group that represents generic drugmakers. Generic drugs have much lower gross margins, making it impossible for manufacturers to absorb additional costs. An additional 25 percent tariff would be get passed on to payers, patients or hospitals.
In recent decades, US pharmaceutical companies, driven by the pursuit of maximum cost effectiveness, gradually shifted a large number of production processes for active pharmaceutical ingredients (APIs) and generic drugs to emerging market countries such as China and India. This industrial layout was not accidental but rather a result of cost, efficiency and economies of scale.
Now Trump’s tariff threats, aimed at reversing this trend, defy market logic and are unlikely to achieve their intended goals.
The US domestic market simply cannot fill the gap in imported generic drugs caused by tariffs in the short term. Relocating generic drug production to the US is not an overnight process. It could take years to establish new production capacity that can be fully operational. Also, since generic drugs aren’t a lucrative business, the tariffs are unlikely to spur production in the US due to companies’ lack of interest in the cost of building new manufacturing facilities.
Also, generic drugs can help make needed medications more affordable for the US public. Generic drugs, with their relatively low prices, provide essential medical protection for numerous Americans. Once tariffs are imposed, the prices of imported generic drugs will inevitably rise. More than one-third of Americans already skipped filling a drug prescription due to high costs, according to a survey The Economist conducted in 2023. Higher prices for generics would exacerbate this issue, disproportionately affecting low-income families and patients.
Moreover, drug shortages are likely as the tariffs may spur better-resourced hospitals and pharmacies to stockpile more of certain types of medications. Once there’s panic-buying, small and rural hospitals could face difficulties in getting what they need.
From the perspective of the global pharmaceutical supply chain, the proposed US tariffs could trigger a chain reaction. Generic drug companies in India could be hit, with reduced orders and overcapacity, leading to instability in the global pharmaceutical industry chain.
In conclusion, the proposed tariffs on generic drugs, seemingly aimed at solving the US dependence on imported generic drugs, are actually short-sighted.
In the short term, this move cannot fill the domestic production capacity gap but will exacerbate the pressure on US medical costs and harm the medical well-being of Americans. In the long term, it will disrupt the stability of the global pharmaceutical supply chain and have immeasurable negative impacts on the development of the global pharmaceutical industry.
