The US Association for Accessible Medicines has laid out a stark warning against pharmaceutical tariffs, cautioning that they “will only amplify the problems that already exist in the US market for affordable medicines,” after a formal investigation was launched by the US Secretary of Commerce into the sector.
Since the start of the second Trump administration earlier this year, there has been confusion and uncertainty over whether tariffs would be applied to pharmaceuticals, amid wider turmoil over broader international trade tariffs that have been variously imposed and paused as the US president has directed.
But now, a notice due to be published in the US Federal Register on 16 April has asked for public comments on an investigation initiated by the Secretary of Commerce – under section 232 of the Trade Expansion Act – “to determine the effects on the national security of imports of pharmaceuticals and pharmaceutical ingredients, including finished drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients, and key starting materials, and derivative products of those items.”
Interested parties have been invited to “submit written comments, data, analyses, or other information pertinent to the investigation to the Department of Commerce’s Bureau of Industry and Security, Office of Strategic Industries and Economic Security” within 21 days of publication of the notice.
Explicitly stated in the notice is that the investigation covers “both finished generic and non-generic drug products,” with the Department “particularly interested in comments and information directed at the criteria listed in §705.4 of the [National Security Industrial Base] regulations as they affect national security.”
“A resilient and reliable generic medicines supply chain is critical to patient health, US healthcare and national security interests. Tariffs, however, will only amplify the problems that already exist in the US market for affordable medicines.”
AAM president and CEO John Murphy III
Responding to the announcement of the investigation, the AAM acknowledged that the announcement of a Section 232 investigation into possible tariffs and other trade remedies had the goal of “encouraging more domestic manufacturing of pharmaceuticals.”
“AAM and the generics and biosimilars industry look forward to working with the Commerce Department and the White House to engage constructively on ways to incent more domestic investment in the medicines supply chain,” said AAM president and CEO John Murphy III.
“As we have said countless times,” he underlined, “a resilient and reliable generic medicines supply chain is critical to patient health, US healthcare and national security interests. Tariffs, however, will only amplify the problems that already exist in the US market for affordable medicines.”
“Without substantive regulatory and reimbursement changes to the US market, tariffs will exacerbate current shortages that hinder patient access today,” Murphy warned. “Instead, we urge the administration to work with us on a suite of reforms that prioritize patients, national security, and ultimately will lead to more resilient and reliable access here in the US.”
And “as was the case in the previous Trump administration,” he added, “we also support exemptions and carve-outs from tariffs for essential and short-supply medicines as well as for the base ingredients in those medicines.”
When talk of tariffs began swirling earlier this year, the AAM warned that a global supply chain for generics and biosimilars was “critically important for US patients,” observing that “from the base ingredients to the finished products, US medicines rely on a global supply chain that is already stressed and in need of strengthening.”
“Generic manufacturers simply can’t absorb new costs,” Murphy explained “Our manufacturers sell at an extremely low price, sometimes at a loss, and are increasingly forced to exit markets where they are underwater. The overall value of all generic sales in the US has gone down by $6.4bn in five years despite growth in volume and new generic launches. Tariffs would make this much worse.”
“Americans pay less for generics than almost anywhere in the world,” Murphy said, “but are facing growing challenges of drug shortages. The previous Trump administration opted not to impose tariffs on generic and biosimilar manufactures. AAM and its members urge the administration to follow their past practice and work with our industry on constructive policies and regulatory reforms that will bolster the resiliency and vibrancy of this critical healthcare market to the benefit of the American economy, lower overall healthcare costs, and keeping America’s patients healthy.”
A factsheet produced by the AAM explains how tariffs on generics and biosimilars are “very likely to increase prices for US patients and government programs and risk exacerbating critical drug shortages,” urging that “any tariff actions should provide exclusions for generic and biosimilar medicines.”
“Unquestionably, talking to our members, there are going to be situations where products become economically unviable to bring into the US should they be tariffed.”
AAM president and CEO John Murphy III
Speaking to Generics Bulletin earlier this year, Murphy observed that “there has been a policy, perhaps unwritten, but a predominant trade policy over the last 30 years that has ensured free trade amongst trading partners on generic and biosimilar medicines, and really on the pharma sector, in a large part. Because you have sick patients all over the globe, and from a business standpoint, in many respects, where a site is located may be the only site necessary to supply the entire globe.”
“So our hope is to really educate the folks making the decisions,” he outlined. “We’re working to try and educate the Department of Commerce folks, US Trade Representative, members of Congress that have a voice in the White House to say, look, this is an area that is really kind of unique, because not only is it a public health priority for us to ensure we have 90% of the medicines that are distributed today, robustly available across the country; but you are also in a unique environment.”
“Whereas it may well be that the lumber industry, oil industry, they have almost a direct line to the consumer – and they can control the cost, they can control the pricing – in the healthcare market for prescription medicines, you can raise your price all you want, but it doesn’t mean that the insurers are going to pay it. And so you’re rate-limited, in effect, in the US market to pass along the kind of cost that would be applied by tariffs.” But ”at the same time, in the generic space, in particularly, your margin compression is so obvious over the past 20 years that your ability to absorb that and still at least make a reasonable return is very, very limited.”
Asked whether the impact of tariffs could push things to a point where the supply chain simply fails altogether, Murphy said it was “unquestionable, in talking to our members, that there are going to be situations where products become economically unviable to bring into the US should they be tariffed. And that is a problem for patients, and it’s a problem for the healthcare system.”
“And honestly, and we don’t talk about this enough, but it’s a problem for the US national security. The drug supply chain is a priority in the national security sense because it is what we need to have as the backbone of responding to natural disasters, keeping our troops healthy, ensuring that Americans have antibiotics in the face of a natural disaster or, God forbid, some sort of a hot war. So we have to really prioritize that viability of the supply chain.”
On the subject of whether tariffs may also lead to renewed moves towards building up domestic manufacturing capacity in the US, Murphy said “I think it’s an element.”
“We acknowledge that there are opportunities to expand the manufacturing base of generics and biosimilars,” he offered, “and there’s no special reason that these are in any one place other than, more often than not, we’re a net importer versus an exporter because the economics are too difficult.”
“So we have a suite of proposals that we are going to bring to the White House and say, look, it may not ever be the case that we are 100% domestically manufacturing, but I do think that there is clear bipartisan interest in trying to find a more stable and resilient supply chain in our near-shore capacity.”
But even if that were to happen, Murphy commented, “tariffs aren’t the way to do that, because it is a five- to 10-year, at least, proposition of government incentives, private capital investment, to get us to the place where we’re even materially near onshoring. And tariffs have a immediate impact.”
“So how do we bridge the gap while putting those incentives in place? We don’t do that by creating artificial shortages because we’ve raised the cost of imports.”
EU Industry Says Tariffs Are Regressive, Counterproductive And Disruptive
Meanwhile, across the Atlantic, the European off-patent industry has also been weighing the potential for US pharmaceutical tariffs. In this context, generics and biosimilars association Medicines for Europe recently met with European Commission President Ursula von der Leyen for a “strategic dialogue on how the European Commission can best support the pharmaceutical sector.”
“The president and the health commissioner are committed to helping the industry and patients in Europe who rely on medicines for better health,” Medicines for Europe stated, emphasizing that “tariffs are a regressive and counterproductive and would disrupt global supply chains, cause shortages of critical and essential medicines and undermine patient access. This is why advanced economies have agreed on World Trade Organisation rules to exempt pharmaceuticals from tariffs.”
Proposing a “five-step action plan for pharmaceuticals,” Medicines for Europe said that five key action areas should be to:
- Continue diplomatic efforts to prevent the imposition of tariffs on EU medicines and active pharmaceutical ingredients, which the association said was “critical to avoid shortages and very real harm to patients”;
- Review “complex and burdensome legislation” that the association says undermines pharmaceutical activities in Europe and negatively affects patient access and security of supply, such as the Urban Wastewater Treatment Directive and restrictions on substances required for manufacturing;
- Accelerate industrial policies like the Critical Medicines Act and the Biotech Act, “as state aid and tax deferments will be necessary to counter the effect of the competitiveness shock caused by potential tariffs”;
- Adopt the EU pharma legislation with “balanced regulatory incentives that health care systems can afford and clear rules to allow day-one competition after patent expiry and accelerate the digital transformation of regulation and of the sector”; and
- Build EU action on strategic autonomy, championing EU solidarity over division “and most importantly, prioritizing the access and security of medicines.”
Medicines for Europe’s comments come after the International Generic and Biosimilar Medicines Association also recently warned of the potential consequences of pharma tariffs on global drug supply. The IGBA emphasized that “any disruption to the existing supply chains, such as the imposition of undue tariffs or other trade restrictions, could negatively impact patient access to treatments, exacerbate existing medicine shortages and threaten the sustainability of the generic and biosimilar industry.”
