Interesting Times
Anders Månsson, Senior Advisor and Nordic Pundit
Tariffs – “Tarrific” or “Tarrifying”
"May you live in interesting times" is an English expression that is claimed to be a translation of a traditional Chinese curse. The expression is intentionally ironic: "interesting" times are usually times of trouble. There is much doubt about this saying actually originating in China. There can, however, be precious little doubt that we do live in “interesting times” right now. This is valid for geopolitics and for trade in general, but it is perhaps further valid for the area of pharmaceuticals, as this area is facing the threat of a special tariff from the USA. It is, however, not easy to see the logic in that.
President Trump has repeatedly threatened to impose significant tariffs on imported pharmaceuticals, ending a decades-long exemption for pharmaceuticals. The stated goal is to encourage domestic production, citing national security concerns and the US's heavy reliance on foreign-made medicines, especially from Ireland, China, and India.
A formal federal investigation on this topic was launched in April 2025. This investigation is the legal prerequisite for imposing tariffs on the grounds of national security. The public comment period is underway, and the investigation must conclude within 270 days.
Major pharmaceutical companies are of course preparing for tariffs by stockpiling drugs and accelerating shipments to the US. This is intended to buffer short-term impacts and maintain supply. This is an obvious short-term response to the threat, but what about the long term?
It is hard to see that tariffs would significantly impact branded pharmaceuticals, as they tend to be unique and high priced because of their demonstrated value and with production costs making up perhaps only a few percentage points of the end-price of the drug. The bulk of the margin serves to repay the originator company for the development of the drug and of course for the development of all the drug candidates that did not make it to the market. It is unclear how tariffs would work for these branded products, for if drugs were to be imported to the US at essentially cost price, tariffs would have a very small impact on the end-price of the drug to the patient or his/her insurance scheme or to the hospital. In fact, guaranteeing good access to innovative drugs probably has much more to do with creating an academic and biotech environment that attracts the best researchers of the world, coupled with the capital accessibility for development that the US currently has.
However, generic drugs, which notably make up over 90% of U.S. prescriptions and are for the most part imported, are more vulnerable to tariffs due to their much slimmer profit margins. Analysts estimate a 25% tariff on Indian generics could raise their prices by close to 20%. Thus, there would be an immediate price to pay in the US for putting tariffs on these types of drugs. The question is also what the purpose would be. If it is about creating jobs in the US, it would be far stretch as the manufacturing of modern-day drug plants is substantially automated and frankly not that work force intense. If the objective is to safeguard supply, as stated, I wonder first if there really is a problem with this that needs to be addressed, and secondly if tariffs and trade wars really are the right remedy. Alienating countries that are the current key manufacturers could of course risk having the opposite effect. At any rate, if building a domestic generic drug industry in the US is what the end goal is, and the methodology would be tariffs, then at any rate that is a very long-term plan that has an immediate and substantial cost to it. Just imagine if 90% of the prescriptions in the US suddenly cost about 20% more…
Industry leaders like Johnson & Johnson and Eli Lilly have publicly pushed back against the tariff threats, highlighting their investments in US manufacturing and warning of potential negative consequences. Thus, it would seem that even the local manufacturing giants are skeptical.
As such, though that talk and bravado on this topic is palpable, it is very uncertain whether any of the proposals will actually be implemented. Also, recent more general US tariff plans tend to be switched on and off with a frequency that can best be described as “stroboscopic”. I guess the only certain aspect of all of this is that we live in interesting times.