Policy Alert: Forthcoming Tariffs on Pharmaceuticals

Action: The Commerce Department has initiated an investigation under Section 232 of the Trade Expansion Act to determine the effects on national security of imports of pharmaceuticals and related products, including precursor chemicals. Under the Act, Commerce must conduct an investigation before the President may impose tariffs. The investigation follows a statement by the President that tariffs on pharmaceuticals would be announced. The Department is accepting public comments through May 7.

Key Insights

Since 1994, pharmaceuticals have generally been exempt from tariffs under the World Trade Organization’s Agreement on Trade in Pharmaceutical Products, in which the US, EU, Japan, and several other advanced economies participate.
While pharmaceuticals are currently exempt from the general 10% reciprocal tariffs, the Administration also signaled that tariffs would be imposed, using a St. Patrick’s Day meeting with Irish Prime Minister Micheál Martin to charge that Ireland “took” the US pharmaceutical industry.
The global pharmaceutical supply chain is highly regulated, highly complex, and interconnected. While some drugs are manufactured in the US, a significant share of their components are sourced internationally. Inputs such as active pharmaceutical ingredients (APIs), key starting materials, and chemical precursors often originate from countries like China and India. According to the FDA, about 28% of API manufacturing facilities supplying the US are located domestically, meaning the vast majority of foundational drug components come from abroad.
About 40% of finished drugs consumed in the US are manufactured overseas, including many generic drugs; nearly half of US generic prescriptions come from Indian manufacturers. Tariffs will put significant pressure on that industry even as the US seeks to negotiate a bilateral trade agreement with India.
This global interdependence makes the supply chains for pharmaceuticals vulnerable to geopolitical tensions, export restrictions, and disruptions in international logistics. The Administration has prioritized reshoring critical supply chains and strengthening domestic industrial capacity, using tariffs as a key policy instrument to advance this goal.
Following the “Liberation Day” tariffs announced April 2 and the subsequent escalation of tariffs on China, Commerce Secretary Howard Lutnick also stated that sectoral tariffs for industries such as pharmaceuticals “are not available for negotiation. They’re going to be part of making sure that we reshore the core national security items that need to be made in this country.”
The Administration believes that “a major tariff on pharmaceuticals” will force companies to “leave [China and] other places because they have to sell” in the US market.
While the Administration did not give other specific reasons for the action, the switch to using tariff authority under Section 232 both gives time for countries to negotiate with the US despite Lutnick’s statement, perhaps offering concessions in other areas, and also puts the tariffs on a more solid legal footing than using the “reciprocal” tariff regime that relies on the International Economic Emergency Powers Act, which has already attracted a lawsuit against it.
Prices of pharmaceuticals are likely to rise once the Administration imposes the new tariffs. This could also have an impact on the prices for health insurance plans, with one analyst suggesting a 2.4% rise in overall health insurance costs from a 20% pharmaceutical tariff.
Even with the new production announced for the US, it will take time for factories to be built or expanded and production to begin, amplifying the effect on consumers. US drug companies are reportedly seeking a phased increase in tariffs rather than an immediate 25% rate as on autos.

Policy Alert: Forthcoming Tariffs on Pharmaceuticals

April 24, 2025

Key Insights

Since 1994, pharmaceuticals have generally been exempt from tariffs under the World Trade Organization’s Agreement on Trade in Pharmaceutical Products, in which the US, EU, Japan, and several other advanced economies participate.

While pharmaceuticals are currently exempt from the general 10% reciprocal tariffs, the Administration also signaled that tariffs would be imposed, using a St. Patrick’s Day meeting with Irish Prime Minister Micheál Martin to charge that Ireland “took” the US pharmaceutical industry.

The global pharmaceutical supply chain is highly regulated, highly complex, and interconnected. While some drugs are manufactured in the US, a significant share of their components are sourced internationally. Inputs such as active pharmaceutical ingredients (APIs), key starting materials, and chemical precursors often originate from countries like China and India. According to the FDA, about 28% of API manufacturing facilities supplying the US are located domestically, meaning the vast majority of foundational drug components come from abroad.

About 40% of finished drugs consumed in the US are manufactured overseas, including many generic drugs; nearly half of US generic prescriptions come from Indian manufacturers. Tariffs will put significant pressure on that industry even as the US seeks to negotiate a bilateral trade agreement with India.

This global interdependence makes the supply chains for pharmaceuticals vulnerable to geopolitical tensions, export restrictions, and disruptions in international logistics. The Administration has prioritized reshoring critical supply chains and strengthening domestic industrial capacity, using tariffs as a key policy instrument to advance this goal.

Following the “Liberation Day” tariffs announced April 2 and the subsequent escalation of tariffs on China, Commerce Secretary Howard Lutnick also stated that sectoral tariffs for industries such as pharmaceuticals “are not available for negotiation. They’re going to be part of making sure that we reshore the core national security items that need to be made in this country.”

The Administration believes that “a major tariff on pharmaceuticals” will force companies to “leave [China and] other places because they have to sell” in the US market.

While the Administration did not give other specific reasons for the action, the switch to using tariff authority under Section 232 both gives time for countries to negotiate with the US despite Lutnick’s statement, perhaps offering concessions in other areas, and also puts the tariffs on a more solid legal footing than using the “reciprocal” tariff regime that relies on the International Economic Emergency Powers Act, which has already attracted a lawsuit against it.

Prices of pharmaceuticals are likely to rise once the Administration imposes the new tariffs. This could also have an impact on the prices for health insurance plans, with one analyst suggesting a 2.4% rise in overall health insurance costs from a 20% pharmaceutical tariff.

Even with the new production announced for the US, it will take time for factories to be built or expanded and production to begin, amplifying the effect on consumers. US drug companies are reportedly seeking a phased increase in tariffs rather than an immediate 25% rate as on autos.

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