WASHINGTON, DC – President Donald Trump holds up a chart while speaking during a “Make America Wealthy Again” trade announcement event in the Rose Garden at the White House on April 2, 2025 (Photo by Chip Somodevilla/Getty Images)
Getty Images
On July 21, 2026, President Trump took to his social media platform to announce a new policy. He stated that starting August 1, 2026, the tariff on generic drugs imported into the United States would remain at zero percent for two years. However, after this period, tariffs would increase to 100% for a year, and then to 200%. Trump explained that this measure aims to encourage the relocation of generic pharmaceutical production to the U.S. and impose penalties on companies that fail to build the necessary infrastructure within the specified timeframe.
The White House plans to use Section 232 of the Trade Expansion Act of 1962 to justify these steep tariffs, citing national security concerns due to reliance on imports. While acknowledging the potential threat, the strategy may have unintended negative consequences. High tariffs on generic drugs could ultimately prove counterproductive.
The Economics Of Generic Drugs Differ Sharply From Brand-Name Drugs
Brand-name pharmaceutical companies invest heavily in developing new drugs, seeking substantial profits upon approval. Once patents expire, generic manufacturers enter the market, driving prices down, often favoring the lowest bidder. To cut costs, many generic drug companies have relocated to countries with lower labor expenses and less stringent regulations than the U.S.
Last September, Trump initially targeted the drug industry by proposing a 100% tariff on imported branded or patented drugs unless companies committed to building U.S. manufacturing plants. Generic drugs were not included. This prompted several large multinational corporations to enhance U.S. drug production, while others negotiated drug pricing agreements with the White House or benefited from reduced regional tariffs.
Trump now focuses on generic drugs, which, despite accounting for a smaller portion of drug spending compared to brand-name pharmaceuticals, make up over 90% of prescriptions in the U.S. and are extensively used in hospitals, outpatient surgery centers, and dialysis facilities.
Tariffs on Generic Drugs Could Backfire
There are several challenges with imposing tariffs on generic drugs:
Price volatility: Unlike brand-name drugs, which command over 80% of drug spending, the generic sector operates on thin margins. Consequently, these companies might pass tariff costs to American wholesalers, potentially doubling retail prices within two years and tripling them within three.
Unrealistic timelines: With the 100% tariff set to take effect on August 1, 2028, and less than six months left in the current administration, political uncertainty makes it improbable for offshore generic drug companies to invest significantly in U.S. manufacturing facilities.
U.S. generic drug manufacturers cannot fill the gap: Currently, 90% of America’s generic drug supply is produced abroad, including most active ingredients for antibiotics. Even if new U.S. plants were rapidly established, there is a shortage of trained pharmaceutical workers to staff them. Although these challenges can be addressed with coordinated action, it may not occur as swiftly as Trump anticipates.
The geopolitical stakes are high: India and China are dominant players in the global production of generic drugs and their ingredients. Trump’s proposed tariffs could provoke adverse reactions from these countries.
There’s A Better Way To Meet This Challenge
The shift of generic drug production overseas was driven by market economics, illegal trade practices, and weak regulatory enforcement. By fostering public and private-sector collaboration and encouraging innovation, this trend can be reversed.
Here’s how:
1) The FDA should openly acknowledge that not all generic drugs are equally safe and effective, as some may be harmful due to poor manufacturing practices.
2) U.S. health systems should demand that drug importers agree to independent testing by ISO-accredited laboratories to identify potentially harmful drugs before they reach patients. If concerning results arise, the FDA should be notified promptly.
3) Drug quality ratings should be made public, similar to other consumer products, to create a strong market signal that encourages high-quality manufacturing.
4) Federal purchasers, including the VA, U.S. military, Medicare, and Medicaid, should prioritize “best value” purchasing over “lowest cost,” taking quality into account. This shift would likely influence private health systems and pharmacies to follow suit.
5) The administration has already initiated steps to rebuild America’s capacity to produce essential medicines. It should further incentivize the construction of manufacturing plants. To maintain a consistent supply, health systems should offer long-term contracts with price floors and guaranteed volumes to high-quality manufacturers.
Before implementing Trump’s tariff threat, it would be prudent to consider a more reliable and safer approach to reducing America’s reliance on foreign drugs of questionable quality, guided by the principles that have strengthened the economy: American ingenuity, informed consumers, and domestic industries dedicated to safeguarding health and security.
The views in this commentary are the author’s and do not necessarily reflect those of any current or past employer.
