Tariffs on imported drugs are back in the spotlight as the 90-day pause in U.S. imported duties is set to expire on July 9th. President Trump has hinted at imposing 25% or higher tariffs on imported pharmaceutical products, despite this being a violation of World Trade Organization rules that exempt pharmaceuticals from such levies. This move could potentially lead to higher prices for branded pharmaceuticals and exacerbate shortages of generic drugs, according to public health experts.
The rationale behind the administration’s push for tariffs is to incentivize drug manufacturers to relocate their production facilities back to the U.S. and reduce dependence on countries that may disrupt trade in times of conflict or emergency. While tariffs may lead to onshoring of manufacturing facilities, it is a process that takes years to fully implement.
The majority of brand name drugs used in the U.S. are imported, and tariffs could result in increased prices for these products. Several major drug companies have already announced new investments in U.S. manufacturing facilities in anticipation of potential trade penalties. However, the short-term impact of tariffs on generic drugs is a cause for concern, as more than 90% of prescriptions dispensed in the U.S. are generics.
In the first quarter of 2024, there were a record 323 drugs in shortage, with a significant proportion of these shortages related to generic medications. A study by industry and academic experts found that 83% of the top 100 prescribed generic medications are import-dependent to some extent. Reshoring generic manufacturing is deemed critical to address potential shortages in the market.
Generic drugs often rely on active pharmaceutical ingredients (APIs) from countries like India and China, with only a limited number of these ingredients produced domestically in the U.S. Imposing tariffs on APIs could exacerbate existing shortages or lead to new ones, as well as potentially driving up prices.
The impact of tariffs on drug prices will depend on the extent of tariff exposure and manufacturers’ ability to pass on price increases. Branded pharmaceuticals with higher profit margins may be able to absorb some of the tariff costs, while generic drugs with lower margins could face challenges. Drug shortages resulting from tariffs could also be compounded by regulatory constraints, such as the Medicaid rebate program.
Overall, tariffs on pharmaceutical products could have far-reaching consequences, potentially leading to shortages of generic drugs, increased costs for consumers, and challenges for domestic and foreign manufacturers. It remains to be seen how these tariffs will play out and what the long-term implications will be for the pharmaceutical industry.
