US President Trump warned drugmakers in a private meeting that companies should move overseas manufacturing to the US or else face tariffs. Image: Tierney L. Cross/Getty Images
Last week, US President Donald Trump said that he plans to impose tariffs on auto, semiconductors and pharmaceutical imports, “in the neighbourhood of 25 percent”. This move is part of his broader strategy to strengthen the US economy by encouraging domestic manufacturing and safeguarding American jobs. Trump also warned drugmakers in a private meeting that companies should move overseas manufacturing to the US or else face tariffs, a Bloomberg report said. At present, US has no tariffs levied on drug imports from India, while India imposes about 10 percent tariff on pharma imports from the US.
Although there is apprehension among Indian pharma players who have been monitoring the situation carefully, analysts believe that while there might be some impact on pharma companies’ profitability, Trump’s move is likely to affect the US health care system a lot more.
What will these tariffs mean for Indian Pharma companies?
India is the largest global supplier of generic medicines, and fulfils about 20 percent of global generics demand, according to a recent Bain & Company report; its exports reach around 200 countries. It ranks third in the world in terms of exports by volume, up from seventh in 2019.
“The Indian pharmaceutical industry plays a vital role in ensuring access to affordable, quality-assured medicines in the US,” says Sudarshan Jain, secretary general, Indian Pharmaceutical Alliance (IPA). “Ensuring the continued availability of affordable medicines remains a shared priority for both nations.”
About 70 percent of generic drugs in the US are imported, of which nearly 50 percent comes from India, said Vinita Gupta, CEO of pharma major Lupin, during an analyst call on February 12 for Q3FY25 results. “We are monitoring it very carefully and the industry has made a strong pitch, both from the Association for Accessible Medicines standpoint as well as IPA. The tariffs, if implemented, will have a significant impact on the generic drug industry.” Lupin, like most other industry stakeholders, is hoping that pharmaceuticals and generic drugs in particular will be exempted from these tariffs.
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Shrikant Akolkar, vice president and pharma analyst at Nuvama Institutional Equities, believes that categorising pharmaceuticals, an essential product, alongside automobiles and semiconductors is illogical. “There is still no clarity on how these tariffs will be applied. Most global MNCs have multiple supply lines across countries. Also does Trump mean these tariffs will be only on generic drugs or innovator drugs? There is a lot of vagueness,” he explains. “The proposal regarding reciprocal tariffs is currently under talks and is being examined. This matter will be discussed through bilateral engagements between the two countries, and further steps will be determined accordingly.”
Impact on US health care system
According to research firm IQVIA, overall cheaper generic drugs saved the US health care system about $408 billion in 2022. To lower costs for patients, the US started outsourcing particularly generics from countries like India and China. The move to implement a 25 percent tariff, hence, becomes counterproductive, say experts. “If the tariffs are potentially on generic drugs—there is already close to 90 percent price erosion on these—then it might only make things worse,” says Akolkar.
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This will eventually do a lot more harm to the US health care system, increasing drug prices further or disrupting the global supply chain. “A lot of Indian pharma players are already selling products that have very thin margins. With an additional tariff, they might look to exit the US as a market, especially for high-volume, low-value and thin-margin products,” he says. When high volume products go off the market, “it will mean shortages of drug supply, essentially global supply chain disruptions. Patients in the US will suffer.”
What happens next?
If Trump does go ahead with implementing these tariffs, experts believe pharma players with a big US play will look to focus more on other regions such as Europe and emerging markets.
Akolkar feels that companies like Zydus, Aurobindo and Dr Reddy’s—companies with a higher presence in the low-margin, generics segment—might be the worst hit. In comparison, players like Cipla, Lupin and Sun Pharma will be safeguarded from potential impact of the tariffs due to their specialised, high-margin portfolios.
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Lupin’s Gupta said, “If [tariffs are implemented], we’ll be looking at other ways and means of mitigating the impact with a combination of manufacturing in the US as well as wherever possible, from a cost perspective and otherwise.” Stakeholders are hopeful that the case made by the industry is heard, and implications understood. “Any tariff impact can really cause more product disruption and drug shortages, which no one wants in the country,” she added.
