How Trump's pharma tariffs disrupt drug supply chains

Harmonized Tariff Schedule (HTS)

In the U.S., the HTS is the official classification system used to determine tariff rates on imported goods. It assigns 10-digit codes based on the internationally adopted Harmonized System, which is used by more than 200 countries to standardize trade categories.

Each HTS code corresponds to a specific description and duty rate. For pharmaceutical products, the differences can be subtle but costly.

"The HTS wasn't designed with pharmaceutical complexity in mind," Shleifer continued. "Even slight changes in formulation, dosage or packaging can require a different classification. Companies need to review every import line-by-line."

Despite longstanding exemptions for finished pharmaceutical products, upstream components often fall under different HTS categories -- many of which are now affected by the baseline 10% tariff.

"The majority of pharmaceutical inputs were previously duty-free," Shleifer highlighted. "Now, almost everything is subject to the extra 10% unless it's clearly exempt. That's why trade compliance audits are critical."

These audits help companies catch misclassifications, incorrect country-of-origin declarations or outdated HTS codes -- errors that can delay shipments, trigger penalties or prompt enforcement from U.S. Customs and Border Protection. In a high-volume, component-heavy industry, even minor mistakes can lead to major disruptions.

Shleifer also stressed the importance of updating internal systems and training compliance staff on rules related to customs bonds, origin declarations and variable HTS classifications. As tariff codes change and regulatory scrutiny grows, teams must be prepared to respond quickly. That means digitizing documentation, coordinating with customs brokers and maintaining clear records to avoid delays, penalties or enforcement action.

How tariffs amplify pressure

Even small cost increases can be disruptive for companies, especially generics manufacturers and contract development and manufacturing organizations. Avalere estimates that only 53% of the APIs used in U.S. medicines are produced domestically, while 30% are imported directly and 17% are incorporated into finished drugs made overseas.

"Some drugs can have over 100 components," Shleifer said. "That level of complexity opens the door to risk, especially from counterfeit or substandard materials introduced during supply shifts."

To mitigate those quality risks, companies should increase batch-level testing, revise quality agreements and re-emphasize expectations with suppliers.

"Make sure suppliers know that quality expectations haven't changed," she added. "Use audits and contracts to lock those expectations in."

A 25% tariff on a $100 API can have dramatically different impacts across the industry. In a branded drug priced at $10,000, that tariff inflates the effective API cost by 26 times. For generics, the same hike results in a 30% increase, an especially painful margin squeeze in a sector with little room for price adjustment.

For context, generic manufacturers are already under significant financial pressure. In 2024, Teva posted a $1.6 billion loss while Amneal reported a $117 million shortfall. Teva has now reported losses for seven consecutive years. In contrast, branded giants like Eli Lilly generated $45 billion in revenue -- up 32% from 2023 -- with net income doubling to $10.6 billion.

Against this backdrop, the financial strain of new tariffs is likely to cascade downstream. Retail pharmacies and 340B providers, often locked into fixed reimbursement rates, will feel the effects immediately. And with group purchasing organization contracts typically set for one to three years, most buyers have little flexibility to adjust pricing in response to sudden spikes.

Incentivizing reshoring

The Trump administration has framed its tariff expansion as a national security initiative to shift pharmaceutical production back to the U.S. However, more targeted economic development strategies, like tax incentives, might be more effective in encouraging companies to reshore operations.

For instance, North Carolina's incentive playbook has quickly attracted billions in domestic investment after the state trimmed its corporate income tax from 3% to 2.5% in 2019, with a plan to phase it out entirely by 2030. Then, it paired that cut with infrastructure grants and fast-track permitting. These financial incentives, combined with infrastructure and business development support, give manufacturers a more stable foundation for long-term decision-making.

But as companies reassess the resilience of their global supply chains, many are looking beyond no-tax incentives to ensure manufacturing doesn't stall when the next tariff wave hits. To begin, businesses looking to strengthen their supply chains need to map every vulnerable input and ask what safety nets a region offers.

"Start by identifying single points of failure, especially components sourced exclusively from high-tariff regions," Shleifer advised. "Then evaluate reshoring incentives, like the Biomedical Advanced Research and Development Authority or Defense Production Act funding," when state perks fall short.

Although major players like Pfizer, Eli Lilly and Johnson & Johnson have already committed billions to domestic expansion, Shleifer noted that even smaller manufacturers can benefit by showing alignment with national priorities.

"Communicate [intended] alignment with national priorities," she said. "Even small moves toward domestic production can reduce regulatory friction."

Still, reshoring is neither fast nor inexpensive. Building a new facility can take 5–10 years and cost up to $2 billion. Meeting U.S. demand for generics, which exceeds 187 billion pills annually, would require 27 times the manufacturing capacity currently needed for branded products.

"Any new or repurposed domestic site needs FDA approval," Shleifer said. "That's expensive, time-consuming and can derail launch timelines if not properly planned." In addition to regulatory reviews, companies must navigate environmental permitting and strengthen cybersecurity measures to protect digital records and safeguard supply chain data.

Global friction

Even without direct tariffs on finished drugs, the international consequences are mounting. Regulators in key markets like India and China are tightening documentation requirements, enforcing stricter manufacturing localization rules and introducing policies that could complicate market access for U.S. companies.

"If India wants to retaliate, it might ask for tech transfer in exchange for market entry," Shleifer warned. "China could quietly slow approvals for U.S.-origin drugs or impose more licensing red tape."

Firms conducting overseas clinical trials, relying on contract research organizations or exporting at high volume could face delayed product launches, disrupted revenue streams and less room to negotiate pricing. Additional hurdles, such as longer review timelines, site inspections or shifting compliance expectations, could also increase operational uncertainty.

To prepare, Shleifer advises companies to establish internal tariff response teams and conduct scenario modeling. These exercises should consider potential 20% tariff expansions, retaliatory measures abroad and contingency plans for protecting high-priority markets.

Tech‑enabled compliance

Legacy systems are ill-equipped to manage today's compliance burden. As trade classifications evolve and new mandates emerge, companies need real‑time visibility into every component of their supply chains. Monitoring tools powered by artificial intelligence (AI) now help automate that process, flagging changes to HTS codes, origin declarations and country‑specific licensing rules as they happen.

"Manual tracking and reactive planning aren't enough anymore," Shleifer mentioned. "Regulatory intelligence platforms can flag country-of-origin changes, classification updates and licensing risks in real time."

With AI, companies can also model tariff escalation scenarios, assess potential enforcement risks and proactively adjust sourcing or routing strategies. Amid rising trade volatility, more global manufacturers are turning to AI-driven regulatory tools to stay agile and compliant without adding to staffing costs.

Future compliance mandates

Tariffs may be the start of a broader regulatory change. New mandates could require real-time ingredient sourcing data, third-party verification or even "resilience scoring" linked to national security benchmarks.

"Start by figuring out the country of origin for every API, excipient and packaging component," Shleifer said. "That's where future compliance mandates will focus."

Supply chain transparency bills such as the Secure Supply Chain Act are gaining traction in Washington. Companies that begin mapping down to tier 2 and tier 3 suppliers today will be ahead of the curve when new reporting obligations emerge.

Policy leverage

Despite the volatility, some firms may find leverage in the current moment. With tariffs positioned as a negotiation tool, pharma companies have a window to influence future trade deals.

"If companies can articulate clear wins, like improved intellectual property (IP) enforcement in China or streamlined reviews in India, they might influence what trade concessions get prioritized," Shleifer suggested.

This matters especially in regions where counterfeit APIs, IP theft or inconsistent regulatory pathways have long challenged U.S. firms. The World Health Organization estimates that counterfeit drugs make up a $4.4 billion global market.

"Being proactive now will pay off when the next executive order drops," Shleifer added. "Because one thing is certain, this won't be the last surprise."

Alivia Kaylor is a scientist and the senior site editor of Pharma Life Sciences.