Proposed 25% Pharmaceutical Tariffs Could Increase US Drug Costs by $51 Billion Annually
Key Insights
A new Ernst & Young (search) report commissioned by PhRMA (search) reveals that a 25% tariff on pharmaceutical imports could increase US drug costs by nearly $51 billion annually, potentially raising prices by up to 12.9%.
The Trump administration has launched a Section 232 investigation into pharmaceutical imports citing national security concerns, triggering a 21-day public comment period with potential tariff implementation following the probe.
Industry experts warn that tariffs would disproportionately impact generic manufacturers operating on thin margins, potentially leading to drug shortages and undermining efforts to boost domestic pharmaceutical production.
The Trump administration's proposed 25% tariff on pharmaceutical imports could increase US drug costs by nearly $51 billion annually and raise prices by as much as 12.9% if passed on to consumers, according to a new analysis by Ernst & Young (search) commissioned by the Pharmaceutical Research and Manufacturers of America (search) (PhRMA (search)).
The report, dated April 22 and reviewed by Reuters, found that the United States imported $203 billion in pharmaceutical products in 2023, with 73% coming from European countries—primarily Ireland, Germany, and Switzerland. Total US sales of finished pharmaceuticals that year were $393 billion.
National Security Investigation Underway
On April 16, the Department of Commerce officially launched a Section 232 investigation into pharmaceutical imports, citing national security concerns over reliance on foreign drug production. This move has triggered a 21-day public comment period as part of the investigation, with a final report expected within 270 days.
The probe could have sweeping implications for the US drug market, where generics account for 91% of prescriptions according to FDA data. If the investigation determines a threat exists, the president could impose tariffs or take other corrective actions.
"This move could significantly disrupt the pharmaceutical supply chain and ultimately harm patient access to medications," said John Murphy, CEO of the Association for Accessible Medicines (search), who warned that tariffs would not improve patient care or enhance the resilience of the US healthcare system.
Impact on Drug Manufacturing and Pricing
Approximately 30% of pharmaceutical imports in 2023 were ingredients used in US manufacturing and then exported or sold domestically. The EY analysis indicates that tariffs on these would raise domestic production costs by 4.1% and reduce the global competitiveness of US-made drugs.
The US exported $101 billion in pharmaceuticals in 2023, representing roughly 25% of US pharmaceutical output. The report suggests that a portion of the 490,000 export-related jobs in the industry could be at risk if higher input costs weaken foreign demand for US medicines.
"Because drug pricing contracts are often fixed over several years, companies can't raise prices quickly to offset tariffs," explained ING analysts in a recent report. "That may force them to cut costs in other areas, especially research and development, potentially slowing future innovation."
Generic Manufacturers Particularly Vulnerable
Industry experts emphasize that generic drug manufacturers, which operate on far slimmer margins than branded pharmaceutical companies, are especially vulnerable to tariffs.
"Older injectable generics, such as cancer (search) drugs, are particularly exposed due to their razor-thin margins," Murphy noted. ING estimated that a 25% tariff could raise the cost of a 24-week generic cancer drug treatment by $8,000 to $10,000.
For countries like India, which accounts for 20% of global generic exports and 60% of low-cost vaccine supply, the added cost burden could make manufacturing unviable for products already sold at minimal margins.
Conflicting Policy Objectives
The tariff proposal appears to conflict with other administration initiatives aimed at reducing drug costs. On April 15, Trump signed an executive order intended to lower drug prices, including changes to Medicare's Drug Price Negotiation Program and increasing transparency around pharmacy benefit manager fees.
"While these reforms aim to reduce costs, they clash with the likely effect of pharmaceutical tariffs, which tend to raise prices and exacerbate drug shortages," according to the ING analysis.
Industry Response and Alternative Approaches
Pharmaceutical companies are actively engaging with the administration regarding the potential tariffs. Swiss drugmaker Roche has petitioned the US government for import tariff exemptions, arguing that the products it ships into the United States are offset by its exports of US-made drugs and diagnostics.
Drugmakers see the probe as an opportunity to demonstrate that high tariffs would hinder their efforts to swiftly ramp up US production, and to propose alternatives, according to Ted Murphy, a trade lawyer at Sidley Austin advising companies on their submissions to the Commerce Department.
Industry representatives are urging the administration to consider other incentives for domestic production, such as tax credits or subsidies, which could be more effective tools for reshoring pharmaceutical manufacturing without compromising affordability or access.
US group purchasing organizations like Premier, which buys drugs for over 4,000 hospitals, have warned that price-locked contracts may increase the risk of shortages if manufacturers can't afford to supply at the agreed prices.
Global Implications
For European countries like Ireland, Germany, and the Netherlands, which export large volumes of branded drugs to the US, the tariffs could result in lost business if production shifts stateside. Simultaneously, generic drug makers priced out of the US market might pivot to Europe, potentially flooding the market and undermining the European Union's push to reshore essential drug manufacturing.
The report did not include the impact of possible retaliatory tariffs, which could have an even more significant economic impact for US producers.
As the investigation proceeds, stakeholders across the pharmaceutical industry, healthcare providers, and patient advocacy groups are closely monitoring developments, with many expressing concern about the potential consequences for drug access, affordability, and innovation in the US healthcare system.