A federal investigation into the financial and national security implications of pharmaceutical imports is leading President Trump to impose steep new fees, but they won’t affect the drugs most Americans take — at least not yet. While the coming pharmaceutical prices cover brand name drugs, they exempt generic drugs which account for the vast majority of US prescriptions.
Exemptions also include certain less prescribed products. Drugs against rare diseases and certain types of cancer therapies are spared, as are fertility drugs, cell and gene therapies and drugs against chemical, biological and nuclear threats. But for the biopharmaceutical companies covered by the president’s new policy, the cost is high: a 100% tariff on brand-name products and pharmaceutical ingredients that enter the country from abroad.
The policy announced Thursday continues Trump’s refrain toward various industries since his first term: Make your products here or pay tariffs. For biopharmaceutical companies faced with these new prices, the financial levy starts at the end of July for large companies and the end of September for smaller ones. This still gives them time to reach an agreement to reduce customs duties.
Trump has implemented tariffs on several fronts. In February, the The United States Supreme Court ruled the president does not have the authority to impose tariffs under the International Emergency Economic Powers Act. Trump bases new tariffs on pharmaceuticals on the findings of an investigation by the US Department of Commerce. Under Section 232 of the Trade Expansion Act of 1962, the Secretary of the Department may investigate the effect of imports on national security. Trump successfully used such investigations to justify tariffs on aluminum and steel during his first presidential term. A year ago he announced an investigation under section 232 in pharmaceutical products and their ingredients, whether branded or generic.
In a presidential proclamationTrump cited FDA figures that 53% of patented drugs distributed in the United States come from outside the country and that only 15% of active pharmaceutical ingredients (APIs) by volume are produced in the United States for the domestic market. The Commerce Department report concludes that reliance on drug imports threatens to limit U.S. access to life-saving medicines if the global supply chain is disrupted. Reliance on drugs and APIs from abroad is a security issue, Trump said.
“The Secretary has found that patented pharmaceutical products and related pharmaceutical ingredients are essential to the military and civilian health care of the United States,” the proclamation states. “A self-sustaining domestic manufacturing and industrial base for pharmaceuticals is essential to being able to meet national defense needs and maintain public health security in times of national emergency or wartime. »
Trump had previously attempted to combat drug and API production through policy, but not in partnership with Congress. Last summer he published a executive order ordering the government to stockpile APIs for certain drugs “critical to the health and security of the nation.” It also prompted pharmaceutical companies to relocate their drug manufacturing operations. The threat of tariffs was the stick that brought companies to the negotiating table.
Pfizer was the first to strike a deal, agreeing last September to match the price of certain drugs. at the lowest price of a product in a comparable developed country, the so-called most favored nation (MFN) price. The pharmaceutical company also agreed to invest in domestic manufacturing. Several other companies followed with their own MFN deals. Those with such agreements are exempt from Section 232 tariffs for the remainder of Trump’s term. A reduced tariff rate applies to companies that have a relocation plan approved by the administration. Rather than facing a 100% rate on imported products, the rate for these companies will be 20%. But if they fail to reach a formal MFN agreement, their rates will increase by up to 100% within four years of the proclamation. Lower rates apply to businesses in countries or regions where the United States has a trade agreement, such as the European Union, Japan, and South Korea.
The zero duty rate on generic drugs also applies to biosimilars and their ingredients. But for generics and biosimilars, the Section 232 tariff exemption could be temporary. The proclamation states that within one year, the Secretary of Commerce may notify the President of any necessary policy changes regarding these drugs and their ingredients.
Industry trade groups don’t like the new pricing policy. PhRMA says the tariffs will jeopardize U.S. capital investments announced by biopharmaceutical companies over the past year. In a prepared statement, PhRMA President and CEO Stephen Ubl said every dollar spent on tariffs is a dollar that cannot be spent on these investments. John Crowley, president and CEO of the Biotechnology Innovation Organization, said in a prepared statement that tariffs, MFN prices, and an uncertain policy environment work against the goals of business expansion in the United States. He added that tariff risks are acute for small and medium-sized biotech companies which often lack capital to build dedicated production.
“While we appreciate that the administration recognizes the need for tariff exemptions for certain critical biotechnology products, the reality is that any tariffs on U.S. drugs will increase costs, hamper domestic manufacturing, and delay the development of new treatments – all while doing nothing to improve our national security,” Crowley said.
More tariffs are imminent. In a information sheet To explain this new policy, the Trump administration stated that Section 232 investigations were underway in sectors adjacent to pharmaceuticals: personal protective equipment, medical consumables, medical equipment and devices, and robotics.
“These investigations will help ensure that harmful imports in any strategic sector do not compromise national security,” the White House said.
Photo: Mandel Ngan/AFP, via Getty Images
