The pharma industry weighs in on the impact that US-imposed tariffs would have on products, manufacturing, and supply chains, particularly for generic drugs. With much uncertainty looming on how trade policy has and will evolve under a new US Administration, what is the latest?

By Patricia Van Arnum, Editorial Director, DCAT, pvanarnum@dcat.org

The latest turn: reciprocal tariffs and trade
The US position on trade, particularly tariffs, has seen several moves by the new Administration under President Donald Trump since taking the helm on January 20, 2025. This week (February 13, 2025), the trade picture took another turn with President Trump signing a Presidential Memorandum ordering the development of a plan to evaluate tariff levels, trade barriers and other practices between the US and its trading partners. Called the “Fair and Reciprocal Plan,” the plan seeks to reduce the US trade deficit in goods and improve US competitiveness, including in manufacturing. The plan first calls for the relevant US departments and agencies to conduct a country-by-country assessment of tariffs and other trade and business practices of US trading partners and then recommending actions to counter any imbalances to ensure reciprocal trade relations.

“This lack of reciprocity is one source of America’s large and persistent annual trade deficit in goods: closed markets abroad reduce US exports and open markets at home result in significant imports, both of which undercut American competitiveness,” said the White House in a February 13, 2025, statement. “….Reciprocal tariffs will bring back fairness and prosperity..”

Under the plan, the US government will first evaluate and then work to counter non-reciprocal trading arrangements with trading partners by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner. The approach would examine non-reciprocal trade relationships with all US trading partners. It would include evaluating the following:  

• Tariffs imposed on US products;

• Unfair, discriminatory, or extraterritorial taxes imposed by US trading partners on US businesses, workers, and consumers, including a value-added tax, referring to a type of consumption tax that is levied on the incremental increase in value of a good or service at each stage of the supply chain;

• Costs to US businesses, workers, and consumers arising from nontariff barriers or measures and unfair or harmful acts, policies, or practices, including subsidies, and burdensome regulatory requirements on US businesses operating in other countries. ” “Nontariff barrier” or “measure” refers to any government-imposed measure or policy or nonmonetary barrier that restricts, prevents, or impedes international trade in goods, including import policies, sanitary and phytosanitary measures, technical barriers to trade, government procurement, export subsidies, lack of intellectual property protection, digital trade barriers, and government-tolerated anticompetitive conduct of state-owned or private firms.

• Policies and practices that cause exchange rates to deviate from their market value, wage suppression, and other policies that reduce US competitiveness; and 

• Other practice that, in the judgment of the United States Trade Representative, in consultation with the US Secretary of the Treasury, the US Secretary of Commerce, and the Senior Counselor to the President for Trade and Manufacturing, imposes any unfair limitation on market access or any structural impediment to fair competition with the market economy of the US.

The Presidential Memorandum calls on US government officials to make that country-by-country assessment of tariffs and trade practices on whether measures are needed to ensure reciprocal trade relations. This assessment is via the US Secretary of Commerce and the United States Trade Representative, in consultation with the US Secretary of the Treasury, the US Secretary of Homeland Security, the Assistant to the President for Economic Policy, the Senior Counselor to the President for Trade and Manufacturing, and the heads of other executive departments and agencies. Through the Presidential Memorandum, they are authorized to initiate actions to investigate practices from any non-reciprocal trade arrangements adopted by trading partners. Upon completion of this evaluation, they are to provide a report to the President detailing proposed remedies in pursuit of reciprocal trade relations with each trading partner. In turn, the Director of the Office of Management and Budget is directed to evaluate within 180 days the fiscal impacts on those measures and deliver that report to the President.

Global reactions
The news of US-imposed reciprocal taxes was met with criticism from the European Union (EU), which is one of the largest trading partners of the US, including for pharmaceuticals. “The European Commission views President Trump’s proposed “reciprocal” trade policy as a step in the wrong direction, said the European Commission in a February 14, 2025, statement. “The EU remains committed to an open and predictable global trading system that benefits all partners. The EU maintains some of the lowest tariffs in the world and sees no justification for increased US tariffs on its exports…”The EU will react firmly and immediately against unjustified barriers to free and fair trade, including when tariffs are used to challenge legal and non-discriminatory policies.”

The US goods trade (exports plus imports) with the EU totaled $975.9 billion in 2024, according to data from the Office of the US Trade Representative. Goods exports totaled $370.2 billion; goods imports totaled $605.8 billion. The US goods trade deficit with the EU was $235.6 billion in 2024. The US is the EU’s largest trading partner for medicinal and pharmaceutical products, according to information from Eurostat, the EU’s statistical and informational body. In 2023, EU exports of medicinal and pharmaceutical products to countries outside the EU reached EUR 277 billion ($290 billion), with the US accounting for approximately one-third or EUR 92 billion ($96 billion).

Tariffs and pharma
The plan for reciprocal tariffs follows recent moves in trade policy from the US government through executive action. Earlier this month (February 1, 2025), the US announced broad tariffs on US imports from Canada and Mexico of 25%, which later were temporarily suspended after reaching tentative agreements with those countries, but imposed a broad 10% tariff on US imports from China.

For all industries, including the pharmaceutical industry, tariffs present additional costs and have to be taken into account in overall supply-chain considerations, an issue of particular concern for the cost-competitive generic drug industry. “The global supply chain for generic and biosimilar medicines is critically important for US patients,” said John Murphy III, President and CEO of the Association for Accessible Medicines, which represents generic-drug and biosimilar manufacturers in the US, in a February 2, 2025, statement, when first commenting on the tariffs imposed on Canada, Mexico, and China. “From the base ingredients to the finished products, US medicines rely on a global supply chain that is already stressed and in need of strengthening….“Generic manufacturers simply can’t absorb new costs. Our manufacturers sell at an extremely low price, sometimes at a loss, and are increasingly forced to exit markets where they are underwater. The overall value of all generic sales in the US has gone down by $6.4 billion in five years despite growth in volume and new generic launches. Tariffs would make this much worse.”

Those concerns of higher costs in a margin-constrained environment for generic drugs were also voiced by the the Healthcare Distribution Alliance (HAD), which represents pharmaceutical distributors in the US. “We are concerned that placing tariffs on generic drug products produced outside the US will put additional pressure on an industry that is already experiencing financial distress,” said HAD in a February 2, 2025, statement when commenting then on the imposition of broad tariffs on US imports from Canada, Mexico and China. “Distributors and generic manufacturers cannot absorb the rising costs of broad tariffs. It is worth noting that distributors operate on low profit margins — 0.3%. As a result, the US will likely see new and worsened shortages of important medications and the costs will be passed down to payers and patients, including those in the Medicare and Medicaid programs.”

Tariffs are seen by the Administration as a way to realize a broader policy goal of increasing US competitiveness, including in manufacturing. While in line with the larger goal to support US-based manufacturing overall and specifically for pharmaceuticals, HAD points to the need to do so through investments and incentives to boost US-based manufacturing. “HDA supports strategic federal investments to boost domestic manufacturing of medical products, such as active pharmaceutical ingredients, key starting materials and finished-dose medicines for greater supply-chain resilience. To this end, we encourage President Trump and his Administration to explore long-term strategic investments and incentives for domestic manufacturing that will augment the availability of safe and affordable medicines. HDA will continue to work with the Administration to help ensure patients can obtain the medications they need, safely and efficiently.”

Also, HDA has recommended to exempt pharmaceuticals from changes in tariff policy as a means to maintain needed supply-chain resiliency. In its February 2, statement, HDA said it “urge[s] caution on establishing tariffs that broadly impact medical products. Accordingly, we ask the Trump administration to consider exempting pharmaceutical products to maintain reliable healthcare delivery.”