Trump’s Pharmaceutical Tariffs Could Increase Costs and Exacerbate Drug Shortages

Experts have informed CNBC that President Donald Trump’s proposed tariffs on pharmaceuticals imported into the U.S. could significantly impact both drug manufacturers and American patients.

Some health policy experts warn that these tariffs could disrupt the intricate pharmaceutical supply chain, increase drug prices in the U.S., and worsen shortages of essential medications. Drug manufacturers typically depend on a global network of production facilities for various stages of the manufacturing process.

“Many individuals already find prescription drugs unaffordable,” said Mariana Socal, a health policy professor at the Johns Hopkins Bloomberg School of Public Health, in an interview with CNBC.

“Any alterations to trade or tariff policies that escalate prescription drug costs, whether via the supply chain or the distribution network, pose a risk of further increasing consumer costs and exacerbating the longstanding affordability crisis for drugs in America,” she explained.

This week, Trump reaffirmed his intention to impose “major” pharmaceutical-specific tariffs “very shortly,” which caused a decline in the stock prices of several drug manufacturers early Wednesday. Although he announced a pause on steep tariff rates affecting numerous countries following negative market reactions that same day, this pause does not seem to extend to levies targeting specific industries, including pharmaceuticals.

Trump had previously exempted pharmaceuticals from the extensive tariffs introduced last week but mentioned that these duties on drugs would encourage manufacturers to shift their production operations to the U.S. at a time when domestic production in the industry has considerably diminished.

However, experts have expressed skepticism about whether tariffs would effectively motivate companies to increase their drug production in the U.S., given that it would entail substantial costs for manufacturers and take several years to accomplish.

According to TD Cowen analyst Steve Scala, certain drugmakers, such as Eli Lilly, Bristol Myers Squibb, and AbbVie, may be better equipped to withstand tariffs because they have a greater number of major manufacturing facilities in the U.S. compared to abroad. Scala noted that most of their active ingredient production sites are also located in the U.S.

On the other hand, he stated that Novartis and Roche “appear to be at greater risk” due to their fewer U.S. plants and a higher proportion of active ingredient sites situated internationally.

The effects of tariffs will vary based on the type of medication involved, according to experts. Manufacturers of inexpensive generic drugs, which constitute about 90% of the medications prescribed in the U.S., may be particularly adversely affected by tariffs, as indicated by Arda Ural, EY’s Americas industry markets leader in health sciences and wellness.

Since these affordable medications typically have lower profit margins than branded drugs and often depend on ingredients sourced from China and India, tariffs could compel some generic pharmaceutical manufacturers to exit the U.S. market entirely.

Ultimately, pharmaceutical tariffs could hinder government efforts to control soaring healthcare costs in the U.S., with Americans spending about two to three times more on prescription drugs than consumers in other developed nations, according to a 2024 RAND report.

The tariffs could exacerbate the unprecedented drug shortages in the U.S., driven by manufacturing quality control issues and surges in demand. Currently, there are 270 active drug shortages in the U.S., and this number has not changed in the past three quarters, as reported by the American Society of Health-System Pharmacists.

However, certain drug categories may be more susceptible to shortages if tariffs are implemented, according to Marta Wosińska, a senior fellow at the Brookings Institution’s Center on Health Policy.

Generic sterile injectable drugs, widely used in hospitals, are already susceptible to shortages and have faced ongoing supply challenges for several years. This category includes items such as IV saline bags, chemotherapy drugs, and lidocaine, used for pain management.

These injectable generics involve complex manufacturing processes and possess low profit margins, complicating their manufacturers’ ability to absorb increased costs resulting from tariffs.

Manufacturers of these injections also have limited capacity to pass on increased costs due to existing contracts with group purchasing organizations, which secure prices but not quantities purchased, Wosińska explained. Group purchasing organizations facilitate the procurement of drugs for hospitals and other healthcare facilities, with contracts typically lasting one to three years.

If producers of generic sterile injectables cannot pass along higher costs, they may have to withdraw from the U.S. market, exacerbating shortages of these vital drugs, according to Wosińska. Alternatively, they may resort to cost-cutting measures, which raises concerns about product quality and may lead to temporary production slowdowns due to contamination issues.

Generic oral medications also face thin profit margins, but their manufacturing processes are less complex and the market is more competitive. These include widely prescribed pills like statins for cholesterol, various blood pressure medications, and metformin for blood sugar control.

These oral drugs are the most commonly used among Americans, with around 187 billion generic tablets and capsules dispensed in retail and mail pharmacies in 2024, according to a recent Brookings report by Wosińska.

According to her, these drugs operate like a “spot market,” enabling pharmacies and buyers to quickly switch suppliers if one source is disrupted by tariffs. While tariffs may prompt price increases, manufacturers of these oral drugs have fewer binding contracts, making it easier for them to adjust to rising costs compared to their injectable counterparts, Wosińska noted.

The repercussions of tariffs on expensive branded medications, which enjoy patent protections and lack competition from generics, will be significantly different, according to some experts. Tariffs on drugs imported from Europe could be particularly impactful, as a substantial proportion of branded drug manufacturing occurs there as well as in the U.S.

“Branded products are predominantly manufactured in the U.S., accounting for about 50%, while around 35% is imported from Europe,” stated EY’s Ural.

There is “little to no manufacturing” of these drugs in China or India, he added.

Nevertheless, branded medications typically enjoy higher profit margins and more stable supply chains compared to generics. This positioning allows branded manufacturers to better absorb costs imposed by tariffs or to transfer those costs onto payers, ultimately affecting consumers.

Since manufacturers hold monopolies on specific branded drugs, they can increase prices, leaving “the American consumer with no alternative due to patent protections,” noted Socal from Johns Hopkins.

“With tariffs in place, the main concern becomes just how much higher prices will rise for these branded products,” she added.

Patients are likely to feel the financial impact of rising branded drug prices more acutely than any increases in generic medication costs, Wosińska pointed out. A price rise for a branded medication would directly lead to higher out-of-pocket expenses for individuals with high-deductible insurance plans or substantial coinsurance rates.

It remains uncertain how Trump’s tariffs will manifest. However, a patient with a 20% coinsurance rate could witness increased monthly expenses if tariffs are implemented, as their share of the cost is directly tied to the price of the branded medication.

Conversely, generic medications, already priced lower, would not present a significant financial burden for patients even if a $3 drug increases by 25%, Wosińska said. Additionally, many patients are covered by insurance plans that use fixed copays for such drugs.

Yet overall, “the primary effect on patient costs is likely to be indirect—ultimately raising premiums due to increased payer spending on medications,” she remarked in her Brookings report.

The pressing question is whether manufacturers will opt to raise prices given the intense backlash from patients and lawmakers alike for the high drug prices in the U.S. compared to other nations. Both the Trump and Biden administrations have been vocal about addressing this disparity in costs.

In a March 28 note, Evercore ISI analyst Umer Raffat stated that several pharmaceutical CEOs indicated they might have to translate some of the impact from tariffs into price hikes.

However, he cautioned that this could intensify the criticism around elevated drug prices in the U.S. when measured against those in Europe, potentially leading to a significant backlash and reviving price-matching proposals from Trump’s earlier tenure.

Some Wall Street analysts have expressed worry that reshoring production to the U.S. will be challenging due to high costs and the extended timeline required for such transitions.

“Global supply chains are intricate, particularly in the pharmaceutical sector—it’s not as straightforward as relocating where someone assembles iPhones,” commented BMO Capital Markets analyst Evan Seigerman in a note on Wednesday.

He added that the tariffs are unlikely to significantly shift manufacturing back to the U.S., as companies are already well-established in the country. Seigerman anticipates that most major pharmaceutical firms will probably choose to “wait until Trump’s term concludes before making any permanent manufacturing decisions.”

Several companies have already committed billions to enhance U.S. manufacturing capabilities. This year, Eli Lilly and Johnson & Johnson announced significant domestic manufacturing investments totaling $27 billion and $55 billion, respectively, over several years.

Nonetheless, some manufacturers have already expressed concerns about tariffs, highlighting their potential adverse effects on research and development in the industry.

“We can’t violate those agreements, so we must absorb the costs of the tariffs and make internal trade-offs,” Eli Lilly CEO Dave Ricks stated in an interview with BBC last week. “Invariably, these trade-offs will lead to reductions in staff or R&D, and I expect R&D will be the first to feel the cuts. This is a disappointing outcome.”