What Trump’s 200% tariff threat on generics means to pharmaceutical industry

Donald Trump’s decision to introduce a 100% tariff on generics from August 2028, which will double by the following year, comes ahead of this autumn’s mid-term elections as the incumbent president looks to encourage increased investment into the US by multinational firms.

For manufacturers of generic drugs – nearly 70% of which are supplied from outside the US – the announcement could have far-reaching consequences, reinforcing the need for careful planning and mitigation strategies amid continued uncertainty surrounding US trade policy.

How it came about

The latest announcement by Trump comes in the wake of his decision earlier this year to put a 100% tariff on brand-name drugs produced overseas.

Companies were offered the opportunity to reduce the tariff to 20% if they committed to onshoring pharmaceutical production to the US, although would face the full tariff level again if production had not begun within four years. Companies that combined onshoring commitments with participation in the administration’s ‘Most-Favoured-Nation’ drug-pricing policy were eligible for further tariff relief, potentially including a 0% rate for a limited period. Several companies have already committed to agreeing to Trump’s ‘most favoured nation’ terms.

Companies in countries with trade deals in the US were also offered lower rates, including Switzerland, Japan and South Korea, along with the EU. The UK was given a three year exemption as part of its trade deal with Trump’s administration.

At the time biosimilars and generics were exempted from the increased charges, but the Department of Commerce was directed at the time to revisit that exclusion within a year, leading to the announcement on 21 July.

The tariffs came despite the previous Supreme Court ruling which struck down his use of emergency powers to put significant tariffs on other countries.

Trump’s announcement, made via his social media platform rather than the White House, was not accompanied by any further details on implementation or terms.

How will this affect pharmaceutical firms?

The announcement by Trump was short on details, which has added to the uncertainty facing the industry. However, there are likely repercussions from the plans which would be felt across the generics sector.

Those operating in that space often do so on much smaller profit margins than brand name pharmaceutical manufacturers, meaning products could become economically unviable if subject to tariffs.

Unlike the major brand manufactures who struck agreements with Trump’s administration after April’s announcement, manufacturers in the generics sector will likely have considerably less leverage to negotiate comparable terms, especially with many of them being based in India or China.

A lack of clarity on what exemptions may be allowed – either through trade agreements or other arrangements with the Trump administration – makes it hard to be certain, but given Trump publicly confirmed that the decision to disapply the exemption for generics is to boost “reshoring” of generics production, it would be a reasonable assumption that some kind of exemptions will be available for companies manufacturing their products in the US – or agreeing to relocate production there.

How far Trump’s use of generics as a term in his social media announcement extends across the industry is something which companies will be keen to clarify – particularly if that includes biosimilars under an umbrella description. It also creates uncertainty around which manufacturing processes may qualify for exemptions, including whether the production of APIs and other upstream ingredients would be treated differently from the manufacture of finished drug products.

The industry will monitor the situation closely as it seeks greater clarity on the scope of the newly announced exemptions.

What does this mean for affected companies?

The biggest uncertainty surrounding these developments is whether the new tariffs will even be implemented.

Two years is a long time in politics, and even more so in Trump’s administration where policies have been announced and reversed on social media on a fairly regular basis. Adding to the uncertainty is the impending mid-term elections in November, where the current administration risks potentially losing the Senate, house of representatives or even both chambers.

Additionally, while the Supreme Court left his tariff on branded pharmaceuticals untouched when it overturned many of his other tariffs earlier this year, any formal attempt at leveraging tariffs on generics and biosimilars could face legal challenges, particularly given the potential implications for drug prices and patient access.

Against this uncertainty, then, comes a need for caution for those operating in the generics market. That does not, however, mean inaction – and beginning preparations now for any impact the tariffs may have could prove important in mitigating the costs and effects further down the road.

Firms should take the opportunity to conduct a product-by-product assessment, understanding potential exposure and mapping where finished dosage forms and APIs originate. This will allow them to identify which of their products could become commercially unviable in the face of 100%+ tariffs.

For those looking to onshore production to the US, seeking expert advice on the potential impacts manufacturing processes might have on US patents is also an important early step – in case there is any risk of infringement of process patents.

Relocating to the USA is not a quick process, despite the urgency of the US President’s charges, and requires regulatory approvals, permits, supply chains and facilities to be secured before manufacturing can begin. Without further detail yet on the terms of the tariffs, the economic viability of this is hard to quantify.

But in the interim, it is essential that – even amid the uncertainty – those potentially affected treat the announcement as serious and begin looking at how best to mitigate their exposure.

Co-written by Kiah York of Pinsent Masons