Trump to tariff pharmaceuticals next. Will this hurt India, a big medicine exporter?

Donald Trump’s tariff war continues. As his “explosive” import duties on countries, including the whopping 104 per cent on China, come into effect, he has spoken of imposing tariffs on pharmaceuticals coming into the United States from foreign countries.

The US president has been hinting for months that the drug industry will be targeted. However, he exempted it from the expansive round of reciprocal tariffs that he announced on April 2, dubbed by him as “Liberation Day” .

We look at what to expect from Trump’s pharma tariffs and what it could mean for India, a major medicine exporter, and America’s other trade partners.

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What did Donald Trump say about pharmaceutical tariffs?

Trump announced on April 8 (Tuesday) that the US will soon announce a “major” tariff on pharmaceutical imports.

“We’re going to be announcing very shortly a major tariff on pharmaceuticals . . . when they hear that they will leave China, they will leave other places because . . . most of their product is sold here,” the US president said during a National Republican Congressional Committee (NRCC) dinner.

He added that the tariff will incentivise drug companies to move their operations to the US, according to Reuters. “We want these companies to make their products here, in America, not in China or elsewhere.”

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“Once we do that, they’re going to come rushing back into our country, because we’re the big market,” Trump noted. “The advantage we have over everybody is that we’re the big market.”

What’s the rate of tariffs Trump could announce on drugs?

The president did not divulge details on pharma tariffs. However, during an interaction with reporters in February, he said that the tariffs on imported drugs would likely start at 25 per cent and could go higher.

During his NRCC interaction on Tuesday, Trump did not mention countries from which the US imports pharmaceuticals. However, trade policy moves under his earlier administration had focused on India and China. Both countries are major suppliers of generic drugs and active pharmaceutical ingredients to the US.

Trump has been vocal about America’s dependence on foreign-made drugs and has promised time and again to reverse the trend. The US administration is reportedly considering using Section 232 powers, which allow tariffs on imports deemed a threat to national security, to introduce the levies. However, a formal investigation, required before implementation, has not yet been initiated.

How big are India’s pharma exports to the US?

India is the third-largest producer and major supplier of generic medicines . The US is the largest market for Indian drug makers, accounting for 31.3 per cent of the total exports. In FY24, India’s pharma exports were valued at $27.9 billion, of which $8.7 billion were to the US. These could be hit if the Trump administration slaps additional tariffs on the industry.

Indian drugmakers play a big role in US healthcare. Forty-seven per cent of all generic prescriptions to the US were supplied by Indian companies in 2022, according to a report by the IQVIA Institute. This amounts to four out of 10 of all prescriptions filled in the country. Indian pharmaceutical companies manufactured 15 per cent of the biosimilar volume used by US patients in 2022.

Out of the top 10 therapy areas by prescription volume in the US, Indian companies supplied more than half of the prescriptions for five categories: mental health (62 per cent), hypertension (60 per cent), lipid regulators (58 per cent), anti-ulcerants (56 per cent) and nervous system disorders (55 per cent).

“Indian companies have the lowest representation in diabetes medicines (at 21 per cent), which also have a lower share of generic medicines compared to the other top therapy areas,” the 2024 report added.

The US depends a lot on Indian drugs, and this trade benefits them financially. According to figures cited by Union Health Secretary Punya Salila Srivastava last year, Indian-made medicines have helped the US healthcare system save $219 billion in 2022 and $1.3 trillion between 2013 and 2022.

What would pharma tariffs mean for India? Will US consumers be hit?

Imposing higher tariffs on pharmaceutical imports could raise production costs and erode price competitiveness, hurting Indian drug manufacturers.

Leading companies like Sun Pharma, Dr Reddy’s, Aurobindo Pharma, Zydus Lifesciences and Glad Pharma reportedly earn 30 to 40 per cent of their revenue from the US market. The upcoming tariffs will impact.

However, tariffs on pharma will not only impact Indian manufacturers but also US consumers. “In case the US starts imposing tariffs on the pharma sector, it will impact both countries,” HDFC Securities analysts were quoted as saying by Mint.

If tariffs are raised significantly, some Indian generic drug manufacturers might struggle to absorb costs. In such a case, they are likely to pass it on to insurers and consumers, the report says.

The higher tariffs could lead to a rise in the prices of drugs, inflation and a shortage of medicines in the US. Like with all levies, the impact will be felt by both manufacturers and consumers.

According to a report by Citi, pharma companies are expected to pass on the hikes to payors. If the costs are not passed on to patients, the entire supply chain will have to absorb the increase.

However, the ongoing trade talks between India and the US could provide some relief. India imports pharma products worth around $800 million from the US annually and charges a duty of five to 10 per cent. “There’s a possibility that the government may [roll back] that import duty… so that the reciprocal tariffs are not there,” Param Desai, senior research analyst at PL Capital Group, told Mint last week.

According to Jefferies, a multinational financial firm, removing import duty on pharma imports from the US is achievable.

After Trump’s announcement, shares of pharmaceutical companies fell up to 10 per cent on the Bombay Stock Exchange in intraday trade on Wednesday. Lupin, Gland Pharma and Zydus Lifesciences were some of the losers on the index.

However, international brokerage CLSA said that the risk of high tariffs on pharma products is lower than the markets are currently pricing in, as the US healthcare system sees major savings benefits because of Indian generics.

The Hong Kong-based firm also believes that even if tariffs are imposed, Indian drugmakers are likely to pass on the costs as they have a dominant market share. However, if these Indian pharmaceutical players are unable to hike their costs, it may result in a shutdown of production, reports moneycontrol.

Which other countries would be hit by Trump’s pharma tariffs?

China is also a major supplier of pharmaceuticals to the US. Between 2020 and 2022, US imports of China-made pharmaceuticals have grown by 485 per cent from $2.1 billion in 2020 to $10.3 billion two years later, raising China’s share of US pharmaceutical imports from 2.5 per cent to over six per cent, according to Coalition For A Prosperous America, a research and advocacy group.

Trump has already imposed 104 per cent duties on goods from China. The pharma tariffs, if introduced, will further increase tensions between the two economies, already on the brink of a trade war.

The European Union pharma industry has raised “strong concerns” about the wider impact of US tariffs on global supply chains and medicine availability in Europe, as well as regulatory barriers within the bloc. It has pushed for simpler “procedures for clinical trials and digitalisation of the European health system, as well as for the protection of intellectual property”.

Europe and the United States have interconnected supply chains for medicines. The United States depends on medicines partly produced in Europe that bring in hundreds of billions of dollars in revenue. EU medical and pharmaceutical product exports to the United States totalled about 90 billion euros ($97.05 billion) in 2023, according to the latest Eurostat data.

In Wednesday’s speech, Trump spoke about the subsidised medicine systems run by nations like Australia, where it is known as the Pharmaceutical Benefits Scheme (PBS). US pharma companies have in the past raised concerns about PBS, saying Australians aren’t paying enough for medicines, reports The Guardian.

“If Trump imposes tariffs, this will increase the prices of Australian drugs sold in the US relative to US-manufactured drugs,” write Monash University experts in The Conversation. This could make Australian drugs more expensive, leading to a possible reduction in demand and prompting manufacturers to move overseas where production might be cheaper.

Australia exports about $2 billion worth of pharmaceuticals, mostly vaccines and blood products, to the US each year.

With elections nearing, both Australian Prime Minister Anthony Albanese and his rival Peter Dutton have said that PBS is “not up for negotiation”. It could only further strain the ties between the two countries.

With inputs from agencies