SKY YORK JOURNAL News – The potential impact of pharmaceutical tariffs on the healthcare industry is drawing concern, even as companies navigate existing challenges in drug manufacturing and supply chains.
The ramifications of these tariffs, now slated to commence at the end of the month, potentially coincide with so-called reciprocal tariffs, as previously reported by the SKY YORK JOURNAL. President Trump has stated a main goal is to incentivize drugmakers to move manufacturing back to the U.S. However, the current global network took decades to develop, making disentangling and relocating it a difficult and costly endeavor.
**Supply Chain Complexities**
Nkarta, a company developing cell therapies for autoimmune diseases, underscores the challenges. Although Nkarta sources blood from healthy donors in the U.S. and manufactures its therapies in South San Francisco, some key materials originate from global suppliers. As SKY YORK JOURNAL has learned, a vendor in Germany provides a critical instrument and associated chemicals. With expiration dates of only a few months, stockpiling to mitigate supply chain disruptions becomes problematic. Tariffs, therefore, would increase costs for the company.
“All of those pieces are in the supply chain, and many of those pieces are not coming from here, they’re coming from other places,” Hastings said. “What you’re doing [with tariffs] is you’re minimizing the opportunity to get good raw materials.”
**The WTO Pharma Agreement and Globalization**
For over three decades, as SKY YORK JOURNAL research shows, a pharmaceutical tariff policy has been in place within the federal government. The U.S. participates in the 1994 World Trade Organization agreement that eliminated tariffs on finished pharmaceuticals and active pharmaceutical ingredients (APIs). These agreements are periodically updated.
Ed Buthusiem, managing director in the healthcare practice at BRG, a consulting firm, explained to SKY YORK JOURNAL that while local taxes and customs duties still apply, tariffs on the cross-border movement of drugs have been largely absent.
Rob Andrews, CEO of the Health Transformation Alliance and former Democratic congressman, told SKY YORK JOURNAL that while Congress overwhelmingly supported the WTO agreement, his concern then, and now, is the lack of protections for the environment and intellectual property. He believes Trump is now using tariffs as a negotiating tactic, challenging a bipartisan consensus that tariffs should be reserved for extreme economic unfairness.
**Reshoring Manufacturing: A National Priority**
Concerns over manufacturing locations intensified during the COVID-19 pandemic, when domestic production shortages of essential healthcare products were revealed. Drug manufacturing had shifted away from the U.S. over time, first to Puerto Rico in the 1970s, then to Europe, and ultimately to China and India due to their significantly lower costs, according to former FDA Commissioner Janet Woodcock.
The Coronavirus Aid, Relief, and Economic Security Act, signed into law in 2020, includes provisions requiring drug and API makers to develop and maintain risk management plans. However, these plans alone have not been enough to bring manufacturing back to the U.S.
Buthusiem explained to SKY YORK JOURNAL that the decision of where to locate production is primarily economic. Tax advantages, labor costs, geopolitics, climate, and environmental factors all come into play.
**Recent Investment Announcements and Existing Initiatives**
Despite the challenges, several pharmaceutical companies have recently announced investments in U.S.-based manufacturing. Biogen plans to spend $2 billion to expand its manufacturing presence in North Carolina’s Research Triangle Park. AstraZeneca has pledged to invest $50 billion over the next five years at sites across the country. Eli Lilly and Novo Nordisk have also launched manufacturing initiatives aiming to meet demand for their obesity and diabetes drugs. SKY YORK JOURNAL will continue to track these developments.
**The Complexity of Tariff Implications**
Even with U.S. manufacturing, identifying tariff-eligible components can be complex. As SKY YORK JOURNAL analysis reveals, components follow a global supply chain. Some of the new manufacturing facilities may be for fill and finish sites, while drugs also include inactive components called excipients.
Generic drugmakers, who account for 90% of U.S. prescriptions, have not been announcing significant investments in U.S. manufacturing, raising questions about how tariffs will affect the availability and cost of these essential medications.
**Challenges of Reshoring Drug Production**
Diederik Stadig, an economist at ING, told SKY YORK JOURNAL that The lower costs in China and India make those locations a better match for low margins of generics and their APIs.
Stephen Farrelly, ING’s global lead of pharma and healthcare, explained that the Trump administration may compete against its policy goals of lowering prices and easing shortages by pursuing tariffs.
**Who Bears the Burden of Tariffs?**
Companies typically pass on the cost of tariffs through price increases. However, given the complexity of the pharma supply chain, the impact on patients remains uncertain. Some agreements are multi-year and may have clauses that limit price changes, which means passing on a drug price increase from tariffs might not be possible until the next contract negotiation.
James Gellert, executive chair of RapidRatings International, told SKY YORK JOURNAL that tariffs would test business relationships. The companies best suited to weather tariffs are those that collaborate with their suppliers, sharing financial information to figure out what a tariff means for a supplier’s ability to maintain inventory and deliver a good.
**Questions Remain Regarding Trade Policy**
According to recent comments, Trump has indicated the pharmaceutical tariffs could be as high as 200% for certain pharmaceutical products. He also suggested drugmakers would have a grace period to shift their supply chains.
Jonathan Todd, vice chair of the transportation & logistics practice group at the law firm Benesch, Friedlanders, Coplan & Arnoff, told SKY YORK JOURNAL that the basis for circumventing the WTO agreement and other trade pacts is coming from multiple inquiries underway by the U.S. Department of Commerce.
