They’ll make Americans sicker, poorer, and less innovative.
P resident Trump has recently struck trade agreements with the European Union and Japan. Both deals will impose a 15 percent tariff on imported prescription drugs and active pharmaceutical ingredients.
White House officials believe these tariffs will benefit Americans by nudging pharmaceutical companies to relocate their manufacturing operations stateside in order to avoid the tariff.
But they are mistaken. These tariffs will raise costs for American manufacturers, insurers, and patients alike. As a result, they’ll make our biotech industry less competitive and force companies to scale back research.
President Trump needs to reverse course — and at the very least exempt medicines from the tariffs.
Biotech industry supply chains are extraordinarily complex. While roughly half of the drugs Americans consume are manufactured domestically, many U.S. factories import at least some of their ingredients and components from abroad. Over one-quarter of the active pharmaceutical ingredients by dollar value in U.S.-consumed medicines come from Europe. Ireland is the source for 19 percent of active pharmaceutical ingredients consumed in the United States by dollar value.
Some common medicines, such as Humira and Ozempic, are made primarily or exclusively in Europe and imported as finished goods.
Tariffs on both finished medicines and ingredients would impose substantial new costs on America’s drug industry. The tariffs on EU medicines and ingredients alone will raise industry costs by up to $19 billion.
When confronted with higher taxes, companies in any industry generally have two options: They can either pass along those new costs to customers, or they can eat them — and accept reduced margins.
Drug companies will do a bit of both. Hospitals and insurers are already bracing for expected drug price increases — hikes that will ultimately be borne by consumers through higher premiums and taxpayers in the form of increased spending by Medicare and Medicaid.
In some cases, drug firms are contractually forbidden from raising prices. They’ll compensate by trimming spending elsewhere. Eli Lilly’s CEO David Ricks recently said that drug companies will almost certainly reduce investment in research and development in response to the tariffs.
Such cuts will have grave consequences for patients, especially those battling incurable conditions who are holding out hope for lifesaving breakthroughs.
The cuts will also do serious damage to American competitiveness. Between 2011 and 2020, American innovators were responsible for originating over 60 percent of drugs approved by the U.S. Food and Drug Administration, according to a study by Vital Transformation. But China is quickly catching up: It now spends more on new drug research and development than the entire European Union, according to one recent report.
Making it more costly for innovative companies to research, develop, and manufacture drugs in the United States will only help China surpass us as the global biotech leader.
The White House seems to believe that the tariff stick will compel drug firms to relocate drug production to the United States. But permitting and regulatory processes here in the United States make it extremely difficult to do so. Building just a single pharmaceutical production plant can take over a decade.
In addition, drug firms already struggle to find qualified employees to work in U.S. plants. According to McKinsey, eight in ten pharmaceutical manufacturers are struggling to find employees with the skills they need.
Further, finding alternative suppliers unaffected by tariffs could take a year or more, according to 80 percent of biotech firms in a recent industry survey.
Simply put, tariffs won’t lead to any short- or even medium-term surge in domestic manufacturing.
None of these negative consequences should come as a surprise. Tariffs are a tax. They squeeze consumers, create market inefficiencies, and increase costs for businesses and consumers. They threaten to halt much of the growth that President Trump’s One Big Beautiful Bill could facilitate in the years to come. And they’ll make Americans sicker, poorer, and less innovative.