President Trump’s new drug tariff policy adds another layer of complexity to an already challenging drug supply chain, with experts looking for clarity on the White House’s plan expected to take effect within a week.
On October 1, Trump announced that brands or patented drugs would face a 100% tariff. He also mentioned that if a drug company is in disrepair or has a manufacturing plant under construction, it might avoid these fines.
While many pharmaceutical companies have pledged substantial investments in the U.S. influenced by the Trump administration’s pressure, it remains uncertain how many would qualify for tariff exemptions under this new framework.
This announcement does not apply to generic medications, which constitute a significant portion of U.S. prescriptions.
Drugs imported from the European Union will exempt from the new tariffs but will incur a 15% tariff instead.
Healthcare attorneys expressed that the new guidelines spark numerous questions for companies aiming to sidestep these tariffs.
“What happens if we have an existing manufacturing facility in the U.S.? Are we exempt simply due to our domestic presence, or must we increase our production capabilities?” Soumi Saha, senior vice president of medical practitioners and legal advisors, pondered.
Saha further questioned how many brand manufacturers might not have a presence in the U.S., casting doubt on the real impact of this policy.
He emphasized the need for clarification, raising concerns about whether a company could limit U.S. production to just one product to qualify for exemptions.
The true effect of this policy is still unclear. European drug exports might slip past tariff contracts reached earlier this year, and the bulk of drug exports from Asia are generics.
Yet, several branded drugs originate from Asia, especially from countries like Japan, Korea, and China. While Japan participates in tariff trading, the current agreements apply solely to generic drugs.
Lacking protective agreements like those in Europe, the industry is expected to feel the brunt of new rules, which were reflected in Friday’s market movements, indicating stability in U.S. and European drug inventories but a decline among Asian counterparts.
Some experts found it hard to predict outcomes due to the insufficient details about the policy, expressing skepticism about its significant impact.
“I doubt the announcement of a 100% tariff will drastically alter the existing uncertainty in the industry regarding tariffs,” Arthur Wong, Healthcare Managing Director at S&P Global Ratings, remarked. “However, we need further specifics on minimal investments, timelines, and outsourced manufacturing implications.”
The industry faces additional uncertainties. The October 1 date aligns with several other significant deadlines related to federal drug pricing policies, with U.S. drug manufacturers needing to commit to Trump’s national orders by September 29.
Consultations for the next round of Medicare negotiations under the Inflation Reduction Act (IRA) are also expected to conclude next week, with potential delays in understanding the repercussions, although some overlap exists.
Implementing such regulations poses challenges, according to former federal trade officials. Particularly, they question how to monitor compliance regarding U.S. facility development.
“How do you ensure clarity when it comes to imports?” Monica Gorman, managing director of Crowell Global Advisors and a former special assistant, stated. “This isn’t straightforward, yet it seems to minimize the immediate impact on generics, which could be vital for American patients.”
It remains uncertain whether this directive was initiated under a Section 232 investigation, which the Trump administration ordered. Earlier in the year, the Department of Commerce began investigating the implications of drug imports on national security, following Section 232 of the Trade Expansion Act of 1962 to restrict imports deemed a national security threat.
If this action derives from the Section 232 inquiries, the tariffs might carry more weight.
“If enacted through Section 232, these tariffs may retain a stronger, longer-lasting effect due to the formal investigation process,” Saha noted. “The nature of the investigation presents additional complexities.”
He speculated that the first ten drugs slated for Medicare negotiations, which will have discounted pricing starting January 1, 2026, could be more vulnerable to Trump’s new tariff policy, since the IRA excludes drugs with generics or biosimilars from negotiations, meaning all selected drugs are branded and patented.
Meanwhile, Washington, D.C. is facing a potential government shutdown slated for October 1 due to Congress’s failure to agree on continuing resolutions.
If the government ceases operations, the rollout might face obstacles, but the tariffs could still come into effect.
“Are those individuals responsible for clarifying implementation processes still working while the government is closed?”
