By President Trump spared pharmaceuticals from the opening salvo in his campaign to transform the economy through “reciprocal” tariffs; however, the global drug market may still be hit by reverberations from trade wars.
The White House listed pharmaceuticals as exempted from the tariffs in Trump’s order signed Wednesday and set to take effect Saturday. Other exempted goods included copper, semiconductors and lumber articles.
But pharmaceutical products aren’t produced in a vacuum and the cost of another class of goods that haven’t even been exempted could very well be passed on to the production of generic drugs, which account for 90 percent of prescriptions in the U.S.
According to Tom Kraus, vice president of government relations at the American Society of Health-System Pharmacists, the fact that bulk chemicals — the starting materials for drugs — have not been exempted from Trump’s tariffs means generics could still be impacted.
“There’s still a risk here. There’s still questions about what applies, and at a minimum, it looks like the key starting materials are still subject to tariffs,” Kraus noted. “So, you know, from our perspective, that creates risk, particularly in the generic market.”
Compared to huge brand-name drug companies, generic drug companies operate on tight margins and don’t have the cushion to absorb some price shocks, Kraus said, also warning of a nontariff factor in the cost and accessibility of drugs.
“The other way shortages could occur, by the way, is if a country that’s subject to these tariffs decides to impose an export restriction,” Kraus said.
“For a lot of these products, we don’t have alternate sources, or not many of them,” he noted. “If China were to impose an export restriction on any key ingredients, it would be hard to make up that gap. So, there’s sort of a risk of shortages in that.”
China was the first country to announce counter-tariffs after Trump’s “Liberation Day” announcement on Wednesday. Beijing said it would impose 34 percent retaliatory tariffs on U.S. goods entering its market, equal to those imposed by Trump on China.
Pharmaceutical supply chain experts had hoped the Trump administration would take a nuanced approach to tariffs, given how many Americans already struggle with drug costs.
“It’s a concern of patients we’re hearing from in our community about what might happen, given that we know that one in three people already can’t afford their prescription drugs,” Merith Basey, executive director of the group Patients for Affordable Drugs, told The Hill shortly before the details of the tariffs were shared.
This decision to spare pharmaceuticals is also in accordance with a 30-year-old trade agreement upheld by the World Trade Organization, which calls for the elimination of tariffs on many pharmaceutical products.
A White House official told The Hill in February no exceptions to tariffs were planned, but that appears to have changed.
For the time being, pharmacy retailers seem somewhat optimistic about the carve-out.
Mark Cuban, the celebrity entrepreneur who owns the low-cost pharmacy Cost Plus Drugs, told Tara Palmeri on Thursday that “he won’t have to raise prices on his pharmaceuticals because drugs were exempted.”
Palmeri previously interviewed Cuban about the tariffs, and he had said he would have no choice but to raise prices and pass those on to his customers if the tariffs were enforced across the board.
Basey had warned that drugmakers could take advantage of the chaos brought on by tariffs to jack up their prices beyond market justification.
“Our concern broadly is that pharma could take advantage of this opportunity to exploit this chaos and justify some of the already extremely high prices that patients are struggling with,” Basey said. “So, this confusion could give them cover, essentially, to demand even higher prices and continue business as usual.”
Democrats are holding on to concerns that tariffs could affect the cost of prescription drugs for both American consumers and domestic drugmakers.
“We are concerned that the tariffs you have proposed on our trade partners will impact prescription drugs, driving up prices for Americans, exacerbating supply chain issues, and hurting domestic pharmaceutical manufacturers,” Democratic Sens. Ben Ray Luján (N.M.) and Raphael Warnock (Ga.) wrote in a letter to Trump.
“Steep tariffs on our closest trade partners only further increase the cost of prescription drugs for both consumers and manufacturers and will lead to drug shortages.”
Noting that generic drug manufacturers lack financial flexibility due to the tight margins they work with, Luján and Warnock warned they could be forced out of the market.
Kraus said a Biden-era provision to control drug costs could make the situation for generic drugmakers untenable under Trump’s tariff regime.
A rebate program established by the Inflation Reduction Act requires drugmakers to pay a rebate to the federal government if the cost of their drugs rise faster than the rate of inflation. The program has allowed for temporary quarterly savings on dozens of drugs since going into effect.
“If you’re a generic manufacturer, you know your sale price is already kind of close to your production costs, but now your costs have gone up,” said Kraus. “And you’re not allowed to raise the price without incurring penalties from the government. Well, now you’ve got to make a decision about do I stay in the market for that drug or do I drop out?”