Trump’s huge tariffs on some drugmakers could end up backfiring

Trump’s Drug Tariffs Could Put Smaller Manufacturers Under Pressure

Activelifezero.com – A new round of pharmaceutical tariffs is set to begin Tuesday, placing a 100% duty on selected patented medicines and drug ingredients imported into the United States. President Donald Trump has presented the policy as a way to encourage more production on American soil, but the companies most exposed to the levy may be the least able to move manufacturing quickly.

Smaller and midsize drugmakers often rely on outside contract manufacturers rather than operating their own production plants. For them, establishing domestic capacity or obtaining space at an existing US facility can be costly and difficult. The result could be consolidation in the industry, fewer medicines from independent manufacturers and, ultimately, higher costs for some patients.

Most large companies have substantial protection

The policy does not apply evenly across the pharmaceutical market. Major companies that signed “Most Favored Nation” agreements are exempt from the highest tariff rate. In exchange, those manufacturers have pledged to expand US production and offer lower prices through Medicaid and TrumpRx, the administration’s direct-to-consumer clearinghouse.

Because those companies produce most brand-name medications, the broadest parts of the market are expected to avoid the full 100% charge. Many other products are also carved out, including generic medicines, orphan drugs intended for rare diseases and certain specialty treatments.

Existing trade arrangements further narrow the group facing the highest rate. Patented pharmaceutical products from the European Union, Switzerland, Japan and South Korea will carry a 15% tariff under bilateral trade deals. Products from the United Kingdom will not face the new levies, while companies with agreements to increase US production will be charged a 20% rate.

That leaves a relatively limited portion of drug manufacturers and products exposed to the 100% tariff. Even so, the impact could be significant for companies with a small number of treatments, limited cash reserves and little control over where those treatments are made.

Contract manufacturing is a major obstacle

More than 100 drugmakers make at least one product that does not qualify for an exemption, a preliminary Brookings Institution analysis found. Marta Wosinska, a senior fellow at Brookings, said most of those companies do not have their own manufacturing facilities and instead depend on contract producers.

That dependency makes a rapid shift to domestic production particularly challenging. US contract manufacturing capacity is already heavily contested, meaning smaller companies may have to pay substantially more to secure production space. Larger pharmaceutical groups generally have deeper financial resources, established factory networks and stronger bargaining power.

“Their pockets are not as deep,” Wosinska said of smaller companies.

Companies that cannot arrange a tariff exception or reach an agreement with the White House could face pressure to sell themselves to larger rivals. A wave of such deals could reduce the number of independent businesses developing and supplying medicines for narrower patient populations.

Patients could face higher costs and fewer choices

The greatest risk may fall on patients whose conditions are not served by the biggest pharmaceutical manufacturers. Those patients can depend on products made by smaller companies, including medicines with more limited commercial markets. If import costs rise sharply, manufacturers may seek to pass part of that expense through the supply chain.

Mollie Sitkowski, an international trade lawyer with Faegre Drinker, said prices for affected medicines are likely to increase. She also expects fewer new drugs to reach the market in the years ahead.

That concern runs against the administration’s stated goal of making medicines more affordable. A tariff can create an incentive to manufacture locally, but it can also consume money that companies might otherwise use for research, development, clinical work or expanding supplies of existing treatments.

Innovation concerns extend beyond immediate prices

Smaller biotechnology and pharmaceutical companies frequently focus on specialized treatments and emerging areas of research. Their work can involve drugs that larger manufacturers have not prioritized, making their financial stability important beyond the products currently on pharmacy shelves.

The Biotechnology Innovation Organization, which represents small and midsize drugmakers, warned the Commerce Department earlier this month that the policy could weaken rather than strengthen the domestic industry.

“Tariffs that punish U.S. innovators are counterproductive and risk slowing the investment and innovation needed to be successful.”

John Crowley, BIO’s chief executive officer, argued that tariffs on medicines could raise costs, hinder domestic production efforts and redirect limited resources away from research and development.

“The reality is that tariffs on America’s medicines will raise costs, impede domestic manufacturing, and divert scarce resources away from research and development critical to maintaining American biotech leadership,” Crowley wrote.

Trump announced the tariffs in April after signaling for years that the pharmaceutical industry could become a target. Drug products had largely avoided such duties for decades under an international arrangement intended to help essential medicines move freely across national borders.

The exemptions and country-specific rates mean the immediate reach of the new policy will be narrower than the headline 100% figure suggests. Yet for the manufacturers that remain in scope, the tariff may become a decisive financial burden. The coming months will show whether companies can secure domestic capacity and preserve their pipelines, or whether the policy accelerates higher prices and industry consolidation instead.