What tariffs could mean for the pharmaceutical industry

President Donald J. Trump’s imposition of steep “reciprocal tariffs,”—which he later paused for 90 days—to help bring manufacturing back to the US seems to have caught the attention of some major pharmaceutical companies. Firms including Novartis, Merck & Co., and Eli Lilly and Company have recently announced investments to make brand-name drugs in the US.

But the active pharmaceutical ingredients (APIs) needed in over-the-counter and generic drugs are imported from China and India in vast quantities, and US manufacturing capacity for APIs is sparse. Levies on those commodities could make prices rise without encouraging domestic production, experts say.

Trump’s April 2 announcement of reciprocal tariffs caused global stock markets to tumble rapidly. While the drug industry was spared that day, he clearly stated that it was next in line.

“The pharmaceutical companies are going to come roaring back, they’re coming roaring back, they’re all coming back to our country because if they don’t, they got a big tax to pay,” Trump said at an event in the White House Rose Garden announcing the new tariffs.

He reiterated the plan at a National Republican Congressional Committee dinner on April 8. “We’re going to be announcing very shortly a major tariff on pharmaceuticals. And when they hear that, they will leave China. They will leave other places because they have to sell—most of their product is sold here, and they’re going to be opening up their plants all over the place in our country.”

Two days after that dinner, the Swiss drug company Novartis announced plans to spend nearly $23 billion over the next 5 years to build and expand 10 facilities in the US, “ensuring all key Novartis medicines for US patients will be made in the United States.”

Novartis says it will build six new manufacturing plants to boost local production of APIs, biologic drug substances, and radioligand therapies. The company also plans to establish a biomedical research innovation hub in San Diego, which will be its second global R&D hub in the US.

Other Big Pharma firms, notably Lilly, which makes the blockbuster weight-loss drug Zepbound, and Merck & Co., best known for its range of vaccines and the cancer drug Keytruda, have made similar investment announcements in recent months.

“Branded companies probably have a higher ability to absorb the increased costs associated with tariffs and to shift their production back to the US,” says Thomas Roades, a senior policy analyst at the Duke-Margolis Institute for Health Policy.

But these branded, or patented, drugs are just a small fraction of the medicines needed in the US. Around 90% of prescription drugs needed are generics, says Roades's colleague, Stephen Colvill, assistant research director at the institute.

According to estimates by US Pharmacopeia, a nonprofit organization, over 80% of the APIs needed to make drugs are imported from China and India, where the cost of manufacturing is significantly lower than in Western countries. Meanwhile, India relies heavily on China for many of the raw materials needed to make the APIs.

Imposing tariffs on those imports could create supply chain snafus and cause shortages that hurt patients, according to Tess Cameron, principal at the life sciences investment firm RA Capital Management. Speaking recently on Biotech Hangout, a weekly discussion of biotechnology news that airs on X, she said, “Tariffs are not necessarily a way for the administration to bring back manufacturing of the generics sector, simply because the margins are so slim.”

Some others on the Biotech Hangout call welcome the pharma tariffs. “I have to say, I support the tariffs,” said Brad Loncar, a longtime biotech investor. Because the US is the biggest market for branded drug companies, it holds most of the cards at the negotiating table, Loncar said. Reshoring drug production will protect national security and important intellectual property, he added.

Roades and Colvill aren’t against tariffs, but they argue that the administration should impose them case by case and forgo putting levies on medicines for which the US has limited manufacturing capacity. “Different products have different supply chains and different points of risk. There needs to be a comprehensive vulnerability assessment and then deciding policy options,” Roades says.