The Trump administration’s latest step towards imposing tariffs on imported medicines means Americans could face higher prices and more shortages of critical drugs, warn experts.
A federal notice filed on Monday announced the launch of an investigation into whether imports of medicines and pharmaceutical ingredients “threaten the country’s national security”, an effort to lay the groundwork for possible tariffs on foreign-made drugs.
Trump is adamant about imposing such levies, to shift overseas production of medicines back to the US, but experts say tariffs are unlikely to achieve that goal, that moving manufacturing would be hugely expensive and take years.
It was not clear how long the investigation would last or when the planned tariffs might go into effect, reports The New York Times.
He started the inquiry under a legal authority known as Section 232 that he has used for other industries like cars and lumber, saying: “We don’t make our own drugs anymore. The drug companies are in Ireland, and in lots of other places, like China.”
While some drugs are made at least in part in the United States, America’s reliance on China for medicines has generated alarm for years, and been identified as a national security vulnerability.
Many drugs are not produced without at least one stage of the manufacturing process happening in China. Even India’s giant generic drug sector is deeply dependent on China, because Indian manufacturers typically obtain their raw materials from Chinese plants.
Imposing disruptive levies on lifesaving medications creates risks for Trump that were not a major concern with some of his other tariff targets, like steel and aluminium, where Americans generally aren’t directly exposed to increased prices.
He could face a harsh backlash if pharmaceutical tariffs lead to significant drug price increases or shortages for patients. The number of drug shortages reached a record-level high last year: Americans fill several billion prescriptions a year, on top of purchasing over-the-counter products.
On Tuesday, he signed an executive order outlining a series of actions intended to lower drug prices, including helping states import drugs from Canada. The idea behind these imports is to bring in cheaper drugs, but tariffs could mean that those imports would not offer the same savings as in the past.
However, in a letter sent to Trump officials last week, a group of lawmakers wrote that “reckless tariffs” on medicines threatened to harm Americans.
“The supply disruptions … will unavoidably hurt patients, force providers to make impossible rationing decisions, and potentially even result in death as treatments are delayed, or more effective medicines and products are swopped for less effective alternatives,” they wrote.
Pharmaceuticals, with cars and electronics, are one of the categories of goods most imported by the US, measured by value. Tariffs on drugs would add tens of billions of dollars of import costs for an industry that relies on a complex global supply chain.
Production of most medications consumed in the country happens in more than one part of the world, with plants in different countries handling different stages of the process.
Expensive patented medications, like weight-loss drug Wegovy, are more likely to be made in Europe or the US, while China and India do most of the production of cheaper generic drugs, which account for most US prescriptions. For example, plants in those countries make nearly all of the world’s supply of the active ingredients in the painkiller ibuprofen and the antibiotic ciprofloxacin, says Clarivate, an industry data provider.
Trump has nine months…
Investigations under the 232 provision must be completed within nine months.
The drug industry has been lobbying government to phase in tariffs gradually or to exempt certain types of products, such as medications at risk of shortages or those deemed essential, like antibiotics.
John Murphy, head of a trade group that represents manufacturers of generic drugs, said tariffs “will only amplify the problems that already exist in the US market for affordable medicines”.
The tariffs would be paid by pharmaceutical companies importing products or ingredients, many of whom would probably try to pass at least some of the added costs to employers and government programmes like Medicare and Medicaid that cover most of the tab for prescription drugs.
That would ultimately affect patients.
Levies could cause shortages of some cheaper generic drugs, because prices are so close to production costs. Manufacturers with such thin margins may be forced to curtail or end production.
Industry experts said they were not concerned about shortages for brand-name drugs, which generally have high profit margins that could absorb tariffs.
Patients whose insurance requires them to pay a deductible or a percentage of a drug's price could eventually face higher out-of-pocket costs for some medicines. They may also have to pay a higher co-payment if shortages resulting from the tariffs force them to switch to a different, pricier medication.
In some cases, contractual agreements and steep financial penalties may discourage manufacturers from sharply raising prices. With patented products, manufacturers typically have such large margins that their sales would still be highly profitable even if they absorbed the cost of tariffs.
David Ricks, chief executive of Eli Lilly, told the BBC earlier this month that his company expected to eat the cost of tariffs. But Lilly could reduce its research spending or cut staffing as a result, he said.
Trump has been saying his tariffs will prompt drugmakers to move their overseas production back to the US. In recent weeks, several of the industry’s richest companies – Eli Lilly, Johnson & Johnson and Novartis – have announced plans to spend billions to build new plants in America.
But experts say the tariffs aren’t nearly enough to bring most drug production back to America. The obstacles are especially steep with crucial generic drugs. Building a new plant takes years. Even shifting production to an existing US plant may be too costly. Labour and other production expenses are much higher in the United States.
Joaquin Duato, chief executive of J&J, said that “if what you want is to build manufacturing capacity in the US, both in med-tech and in pharmaceuticals, the most effective answer is not tariffs, but tax policy”.
The Trump administration has been taking aim at Ireland, where nearly all of the largest American drugmakers have a manufacturing presence, sometimes dating back decades. One of Ireland’s biggest appeals for the industry is the tax advantages it offers. Some drugmakers shift their profits there to lower their overall tax bills.
Last month, Trump said that Ireland “took our pharmaceutical companies away”. Howard Lutnick, the commerce secretary, said Ireland was running a “tax scam” that American pharmaceutical companies were exploiting. “That’s got to end,” Lutnick said.
Some of the industry’s biggest blockbusters, including the cancer drug Keytruda and the anti-wrinkle injection Botox, are partly produced in Ireland. The US imports more pharmaceutical products, as measured by their value, from Ireland than any other country.
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