Pharma Exhales, Dodging A Financial Blow With Tariff Exemption

It was not immediately clear from US president Donald Trump’s remarks at the White House, but it appears that pharmaceuticals are exempt from a sweeping US tariff plan that targets almost all other goods and most American trading partners.

The executive order that Trump outlined on 2 April lays out a few products that are not subject to the tariffs including “copper, pharmaceuticals, semiconductors, lumber articles, certain critical minerals, and energy and energy products.”

Industry had been anxiously awaiting a final word on whether or not medicines would be included in the tariff plan. Pharmaceuticals have generally been exempt from prior trade wars given the critical nature of medicines, but in this instance, Trump had recently railed against the offshoring of pharmaceutical manufacturing and it remained uncertain where his pen might land.

The news is a relief to industry, which is trying to stay focused on business as usual despite chaotic disruptions at the US health agencies that regulate drug development and reimbursement. If Trump’s plan to stamp a minimum 10% tariff on all imported goods – with substantially higher tariffs for certain countries – extended to pharmaceuticals, it would deal a major financial blow to the industry, which manufactures much of the pharmaceuticals and active ingredients it sells in the US outside of the country. (See chart.)

Trump’s goal is to bring manufacturing jobs back to the US. As he said, during a speech at the White House rose garden outlining the latest executive order on tariffs, “jobs and factories will come roaring back into our country.”

Industry has used US manufacturing investments as one tool to hopefully sweeten its position with the president. Trump, during the tariff briefing, hailed Johnson & Johnson as “a great company” for its promise to invest $55bn in US manufacturing over the next four years, a 25% increase over the prior four years, while Lilly and Merck & Co. received similar praise.

Hold The Champagne

Nonetheless, it’s possible that pharmaceuticals could be added to the list of products for which tariffs are applied in the future. The executive order specifically mentions pharmaceuticals as an area where it is essential to maintain “robust and resilient” domestic manufacturing. And some reports ahead of the announcement, citing sources familiar with discussions, suggested pharmaceutical tariffs might be phased in at a later date.

Trump specifically called out the manufacturing of antibiotics outside the US as a problem, though making antibiotics more expensive and harder to access for Americans with tariffs may not be an economic or public health win.

“The United States can no longer produce enough antibiotics to treat our sick,” Trump said. “We have a tremendous problem. We have to go to foreign countries to treat our sick. If anything ever happened from a war standpoint, we wouldn’t be able to do it.”

RBC Capital Markets analyst Brian Abrahams cautioned investors about celebrating too early.

“Pharmaceutical tariffs could still be implemented in the future – and indeed, we thought that many had expected an announcement specific to pharmaceutical tariffs to be announced later and/or to be phase in rather than immediate,” he said.

Analysts at Leerink were also wary. “We think the overall tariff situation remains fluid and president Trump has discussed pharma tariffs in the past,” the analyst team said in a note.

Despite the reprieve – for now – for pharma, macroeconomic uncertainty caused by tariffs is likely to impact the financial outlook across sectors. In the already high-risk area of biopharma, continued financial uncertainty is likely to weigh on industry. The XBI fund fell 4.5% in after-hours trading, on top of heavy declines earlier in the week following news of FDA staff reductions and leadership departures.