Pharma braces for tariffs as Trump threatens to buck trade convention

After raising tariffs on steel and aluminum, U.S. President Donald Trump had a clear message for the pharmaceutical industry — you’re next.

“It’ll be 25 percent and higher, and it’ll go very substantially higher over [the] course of a year,” he said when asked about semiconductors and pharmaceuticals during a press conference at his Mar-a-Lago residency in Palm Beach, Florida on Feb. 18. He later doubled down on his 25-percent tariff plan for Europe on Feb. 26.

Generic drugmakers say that will lead to price increases for American patients, while analysts believe tariffs could also disrupt the delicate drug supply chain at a time when both the U.S. and the EU are trying to boost domestic medicine production after years of relying on cheaper Asian drugs.

“Tariffs would affect both sides of the ocean,” Elisabeth Stampa, board chair at Spanish generics and active pharmaceutical ingredients firm Medichem, told POLITICO, underlining that Europe, which is a major supplier of medicines and their ingredients to the U.S., would experience export disruptions.

Analysts also warn that counter-measures from Brussels — which the EU has promised — could end up exacerbating the continent’s supply problems.

Whatever the consequences, tariffs on the industry would signify a new frontier in a trade war. Pharmaceutical products are normally excluded from tariffs because of a World Trade Organization agreement that dates back to 1994.

“The general trend of the last decades has been to lower tariffs on pharmaceuticals globally to promote better access to medicines. Pharmaceuticals have not been at the forefront of recent tariff disputes,” said Justine Fassion, an international trade lawyer at Sidley.

Many pharma companies have shrugged off tariff fears because of that text. GSK’s Chief Executive Emma Walmsley name-checked it last month when she said that medicines are typically exempt “in recognition of the fact that it matters for patients.”

The Irish case

Ireland’s investment agency, IDA Ireland, is also banking on that convention.

Its chief executive Michael Lohan said this week that “one would hope that [WTO protocol on pharmaceuticals] would continue.”

The Irish industry is particularly exposed: In 2023, the U.S. was the No. 1 country for Irish goods exports, with the United States buying products worth €54 billion. Of that, some €36 billion related to pharmaceuticals and chemicals.

Lohan also played down the risk, saying the point in the supply chain at which a levy was applied was an important consideration.

“If you have an unfinished product, it needs to be finished and completed before it is turned into revenue and sale,” he said. “So the point at which the tariff is applied — is it the point of sale, or the point of transfer as it goes through a supply chain? I think that is a distinct difference.”

A spokesperson for Ireland’s Department of Foreign Affairs said in an emailed statement that it “will work with EU partners to measure the impact of tariffs across all sectors, and calibrate our response on that basis.”

“Increased protectionism is not in the interests of businesses or the global economic environment, and would not benefit the EU, Ireland or the U.S.,” it added.

Counting the cost

Larger pharmaceutical companies with a big presence in Europe have also played down their concerns, saying they would be able to absorb the cost of any tariffs.

Novo Nordisk CEO Lars Fruergaard Jørgensen said that while the company was “not immune” to the effects of tariffs, it is “confident” the business could weather the storm. 

That’s despite Novo’s producing all of its weight-loss drug Wegovy’s active pharmaceutical ingredient, semaglutide, in Europe, from where it is exported to the United States.

But smaller companies say they’re concerned about the potential impact on their business.

“Such uncertainty complicates investment decisions and strategic planning, making it essential to prepare for various scenarios,” Jacopo Andreose, CEO at Angelini Pharma, told POLITICO in an email. The Italian firm makes products including eye drops and heat pads.

The U.S. is the largest export market for European pharmaceutical products, accounting for 33 percent of the sector’s exports, he said, adding that “any trade barriers would impact supply chains, increase costs, and ultimately limit patient access to essential medicines” in the U.S.

“Moreover, tariffs would drive up pharmaceutical prices in the U.S., affecting both patients and the entire U.S. health care sector.”

“The climate of uncertainty is already damaging an EU that is struggling with competitiveness,” he added.

And pharma isn’t an agile industry.

“You don’t move manufacturing overnight,” said Fassion, the Sidley lawyer. “Manufacturing in the pharma industry is subject to various regulatory constraints, so it can take time before you can move production from one country to another.”

Retaliation conundrum

The big question is — would the EU retaliate?

The European Commission said earlier this month it would react “firmly and immediately” to any levies, but when it comes to drugs, European patients could end up in the cross-hairs.

Both the EU and the U.S. are drawing up measures to bolster their domestic drug production, but both are currently hugely reliant on Asia for medicines and their compounds, especially cheaper generics.

The U.S. has one advantage: When supply issues arise in China or India, “pharmaceuticals tend to go to the U.S. over the EU because they pay more,” said Diederick Stadig, health economist at Dutch bank ING.

Medicines for Europe, a lobby group for the continent’s generics sector, wants to use the moment to work together.

“Europe or the U.S. (alone) will struggle to build competitive manufacturing,” its Director General Adrian van den Hoven said in an email. “We would be happy to work with the U.S. industry and government to tackle jointly concerns over dependence.” He added that Europe is a “major supplier” of generic medicines and active pharmaceutical ingredients. 

Nevertheless, the continent’s drug shortage problem complicates any decision by Brussels to impose countermeasures on the U.S.

“I assume the Commission is thinking about this, thinking ahead and preparing counter-tariffs,” Belgium’s Health Minister Frank Vandenbroucke said at a Polish presidency event in Brussels this month. 

He cautioned: “I think we should be very careful because of unintended impacts on the supply chain.” In many European countries the price is fixed, so if a tariff is levied the product may simply disappear, he said. “I think we should be very careful.”

Aging populations in Europe are creating increasing demand for medicines, and cheaper medicines in particular, said Stadig, the ING economist. But tariffs generally drive prices up.

“This, and shortages, may inform the EU response when it comes to tariffs. This poses many complex questions to policymakers,” he said. 

“I wouldn’t want to be the person making that decision.”

Helen Collis contributed reporting to this article.