A 100% tariff on some imported drugs is coming October 1, Trump says

By Tami Luhby, CNN

(CNN) — President Donald Trump announced Thursday that brand-name or patented pharmaceutical products will be subject to a 100% tariff starting October 1 – unless the drugmaker is building a manufacturing plant in the US.

Trump has been promising for months to levy tariffs on pharmaceutical imports, which avoided tariffs during his first term. The president sees tariffs as a way to pressure drug manufacturers to ramp up production in the US and to strengthen the supply chain for essential medicines.

Also, Trump has pointed to tariffs as a way to fulfill his vow to lower drug costs, though experts say that is unlikely to happen.

Drugmakers have taken Trump’s tariff threats seriously, unveiling hundreds of billions of dollars of commitments to build or expand US manufacturing operations in the coming years. Just this week Eli Lilly announced it would construct a $6.5 billion manufacturing facility in Houston, shortly after saying it would build a $5 billion plant outside of Richmond, Virginia.

Trump indicated in a Truth Social post Thursday what would be needed to avoid the tariffs.

“‘IS BUILDING’ will be defined as, ‘breaking ground’ and/or ‘under construction,’” Trump wrote in a Truth Social post. “There will, therefore, be no Tariff on these Pharmaceutical Products if construction has started.”

However, it can take time to put shovels in the ground so it’s unclear whether these promises will be enough to avoid the tariffs – assuming the drug companies aren’t already in construction elsewhere in the US. Eli Lilly said it could take up to five years for the plants to be operational.

That distinction could blunt the impact of the levies.

“The actual comment from the President is direct but its impact may be somewhere between nebulous and negligible,” Jared Holz, an analyst with Mizuho, said in a note to clients. “All major players have some production presence domestically and almost all have announced increased investment directly tied towards local manufacturing.”

That’s why most major foreign drug manufacturer stocks were largely unchanged Friday, following Trump’s announcement. European drugmakers AstraZeneca (AZN), GSK (GSK), Novartis (NVS), Novo Nordisk (NVO) and Sanofi (SNY), all of which are building or have plans to build US factories, were either slightly lower or slightly higher in premarket trading. But drugmakers Alibaba Health, Chugai, Daiichi, JD Health, Samsung Biologics, Sankyo, Sankyo and WuXi AppTec fell somewhat more substantially on Asian stock exchanges, even though they may be exempt from the tariffs or make up a relatively insignificant portion of the US market.

A leading pharmaceutical industry association warned that medicines have previously been exempt from tariffs because of increased cost and shortage concerns.

“PhRMA companies continue to announce hundreds of billions in new US investments thanks to President Trump’s pro-growth tax and regulatory policies,” Alex Schriver, senior vice president at the Pharmaceutical Research and Manufacturers of America, known as PhRMA, said in a statement.

“Tariffs risk those plans because every dollar spent on tariffs is a dollar that cannot be invested in American manufacturing or the development of future treatments and cures.”

The tariffs should not affect many larger pharmaceutical companies because they have construction projects underway, David Risinger, an analyst with Leerink Partners, wrote in a note to clients. But it is difficult to know which smaller manufacturers may face exposure.

Global manufacturing

The pharma companies’ moves are not expected to decrease the United States’ reliance on foreign sources for key pharmaceutical ingredients and drugs, experts say. The pharmaceutical industry is a global web, with ingredients and finished drugs being manufactured in a multitude of locations around the world.

These products may have also seen “significant” stockpiling by US importers this year as the companies braced for the expected tariffs, which should soften the new levies’ impact, said Neil Shearing, chief economist at consultancy Capital Economics.

The impact on exporting countries is likely to be relatively limited too, he wrote in a note Friday. The countries most reliant on pharmaceutical exports to the US are in the European Union, he noted, while in July Trump announced a much lower, 15% levy on most imports from the 27-nation bloc, including pharmaceuticals, with exemptions for generic drugs.

The lower tariff should still apply, according to the EU. “This clear all-inclusive 15% tariff ceiling for EU exports represents an insurance policy that no higher tariffs will emerge for European economic operators,” a European Commission spokesperson told CNN Friday. “The EU is the only trade partner to achieve this outcome with the US.”

Notably, Trump did not mention Thursday levying tariffs on generic pharmaceutical imports, which experts have said could worsen drug shortages. Generic drugmakers have much thinner profit margins, which would make it much more difficult for them to absorb tariffs. Instead, they may opt to stop selling their products in the US.

India, for example, is spared for now, given that its pharmaceutical exports concentrate on generics, even though it supplies nearly 47% of the required pharmaceuticals in the US, according to Namit Joshi, chairman of the Pharmaceutical Export Promotion Council of India.

The proposed tariff is “unlikely to have an immediate impact on Indian exports, as the bulk of our contribution lies in simple generics and most large Indian companies already operate US manufacturing or repackaging units and are exploring further acquisitions,” he said.

The Trump administration has yet to release the findings of its investigation into national security implications of drug imports, which is expected to set the stage for broader tariffs on the industry.

The president last month told CNBC that he would levy tariffs of up to 250% of drug imports, but that they would ramp up over time.

Thursday’s pharmaceutical tariff announcement came the same day as he announced a 50% tariff on kitchen cabinets and bathroom vanities and a 30% tariff on upholstered furniture, as well as a 25% tariff on heavy trucks made outside the US.

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CNN’s John Liu and Olesya Dmitracova contributed reporting.