Trump signals shift in drug import tariff policy

Reshoring doubts

Trump claims that placing tariffs on pharmaceuticals will incentivize companies to bring manufacturing back to the U.S. However, industry experts question the feasibility and widely caution that pharmaceutical supply chains are too global, regulated and capital-intensive to realign quickly.

In fact, analysts have indicated that the tariffs are unlikely to increase domestic manufacturing significantly and might instead reduce patient access to medications while raising overall costs.

Import reliance

In 2024, the U.S. imported $213 billion in pharmaceutical products. Nearly half of its generics came from India, while the European Union (EU) supplied $127 billion worth of high-value branded medicines, making it America's largest pharmaceutical trading partner.

The U.S. remains heavily dependent on foreign manufacturing for both active pharmaceutical ingredients (APIs) and finished drug products, a reliance that continues to raise concerns about supply chain resilience.

According to the FDA, as of August 2019, only 28% of the facilities producing APIs for the U.S. market were located domestically. The remaining 72% were overseas, with 13% based in China.

This dependency is especially pronounced for critical therapies. An estimated 90% of all antiviral and antibiotic medications rely on APIs that are not produced in the U.S. Additionally, 83% of the top 100 prescribed generic drugs are import-dependent, with antibiotics and antivirals among the most vulnerable.

China plays an outsized role in the supply of key ingredients, accounting for the following generic imports:

• 95% of ibuprofen.
• 91% of hydrocortisone.
• 70% of acetaminophen.
• 40–45% of penicillin.

India and China together dominate the generic drug supply chain and now account for 85% of all new API filings, according to an industry watchdog. Most generic medications consumed in the U.S. originate from India, Israel and parts of Europe.

Analysts warn that tariffs could intensify ongoing drug shortages, particularly for low-margin generics and injectables with limited supplier competition. Additionally, hospitals already experiencing record shortages may struggle to secure adequate supplies if prices rise or supply lines falter.

Cost implications

Former White House Council of Economic Advisers Chief Economist Ernie Tedeschi told ABC News that, in 2024, the average U.S. household spent about $4,200 on prescription drugs. That total includes both out-of-pocket expenses and amounts covered by insurance.

Tedeschi, now director of economics at Yale's Budget Lab, said the center's analysis found that a 25% tariff on pharmaceuticals would lead to a 15% average increase in drug prices.

“Based on our assessment, costs for prescription drugs would rise by an average of around $600 per year per household in the United States,” he explained. “Now, not all of that would necessarily be out-of-pocket for the average family, but if a family is not paying that full $600, their insurance company is paying the other part of it.”

He added, “So even if families don't see a price increase that they are responsible for, they may end up paying higher insurance premiums [and] higher co-pays as a result of this.”

These added costs could cascade across formularies and rebate structures, causing problems for payers, employers and pharmacy benefit managers.

Analysts estimate that tariffs could add $53 billion in cumulative costs across the pharmaceutical supply chain. Relocating manufacturing to the U.S. is no quick fix; building a new plant may cost up to $2 billion and take 5–7 years to become operational, including the time and expenses required to meet a range of regulatory compliance standards.

High risk, low reward?

While the government's reshoring push is meant to increase domestic manufacturing and address price disparities between the U.S. and other countries, most analysts agree the tariffs are unlikely to bring short-term relief or meaningful manufacturing growth. Instead, they risk inflating costs, delaying innovation and deepening structural vulnerabilities in an already stressed U.S. healthcare system.

With $164.8 billion in pharmaceutical investment planned in the EU over the next five years and the U.S. accounting for a third of India's pharma exports, industry stakeholders might need to prepare for a turbulent shift in global pharmaceutical trade dynamics.