For many years, insulin, heart medications, and antibiotics have been traded across borders without tariffs, aimed at keeping medicines affordable. This situation, however, may soon change.
President Trump has been hinting for months at the possibility of raising tariffs on pharmaceuticals as part of his strategy to overhaul the global trading landscape and encourage domestic manufacturing. Recently, he suggested that these tariffs could be implemented in the “not too distant future.”
Should this happen, it could lead to significant and unpredictable impacts on drugs produced within the European Union.
Pharmaceuticals and chemicals represent the largest category of exports from the EU to the U.S., including popular drugs like Ozempic for weight loss, cancer therapies, heart medication, and flu vaccines. Many of these are branded drugs that command high profit margins due to the U.S. market’s high prices and large consumer base.
“These are vital for sustaining life,” stated Léa Auffret, who leads international affairs for BEUC, the European Consumer Organization. “It’s alarming to see them caught in a trade conflict.”
European pharmaceutical firms might respond to Mr. Trump’s tariffs in various ways. Some are already planning to boost production in the U.S., aligning with Mr. Trump’s objectives, while others may consider relocating their manufacturing later.
Still, some companies might opt to remain in Europe but increase their prices to offset the tariffs, which would raise costs for patients. This price hike could impact not only American individuals but also patients in Europe. A number of companies have started suggesting that Europe should simplify its regulations to facilitate better business conditions.
A middle ground may emerge, whereby companies might shift their financial records to the U.S. to avoid tariffs, while maintaining their manufacturing sites in Europe to sidestep the costs and complications of relocating.
Auffret’s organization has already cautioned European authorities against retaliating by placing tariffs on U.S. drugs, as this could significantly burden European consumers.
The pharmaceutical industry is complex. Contracts with insurers and government entities can hinder quick price adjustments for branded drugs, and regulations can complicate relocation efforts. Consequently, the future remains uncertain.
“It’s been a long time since we’ve had tariffs on pharmaceuticals,” noted Brad W. Setser, an economist at the Council on Foreign Relations, who has studied the tax incentives that promote offshore production.
Despite Mr. Trump temporarily halting his proposed “reciprocal” tariffs in favor of a universal 10 percent rate, he has kept certain industry-specific tariffs in place and indicated that tariffs on computer chips and pharmaceuticals are forthcoming. The U.S. has recently initiated investigations into both industries, a preliminary step toward imposing tariffs.
Many industry analysts expect these new tariffs could reach up to 25 percent, aligning with those on steel, aluminum, and automobiles.
For nations central to Europe’s drug industry, the prospect of tariffs is especially concerning. This is particularly relevant for Ireland, where pharmaceuticals account for 80 percent of its exports to the U.S.
Many pharmaceutical firms established operations in Ireland due to its low corporate tax rates, while also benefiting from a strong local pharmaceutical sector and skilled labor force.
The industry has expanded rapidly in recent years, with over 90 pharmaceutical companies now operating in Ireland, according to the country’s Foreign Direct Investment Agency, including numerous major American firms. Last year, Ireland exported approximately 58 billion euros (around $66 billion) of pharmaceutical and chemical products to the United States.
“The Irish are clever, indeed,” said Mr. Trump in March, during a visit from Irish Prime Minister Micheál Martin to the White House. “You’ve attracted our pharmaceutical and other companies,” he remarked. “This beautiful island of five million people has captured the entire U.S. pharmaceutical industry.”
Now, tariffs could undermine the benefits of producing drugs there — which is part of Mr. Trump’s strategy.
“In the U.S., we no longer manufacture our own drugs,” Mr. Trump stated last week from the Oval Office, adding that “the drug companies are based in Ireland.”
Companies are already preparing for the potential impact. There is evidence that firms are hastily exporting pharmaceuticals from Ireland to the U.S. market before tariffs take effect.
Ireland is not the only nation facing these concerns. Germany, Belgium, Denmark, and Slovenia are also significant players in pharmaceuticals.
“This is a huge issue for Europe,” remarked Penny Naas, who heads a competitiveness program at the German Marshall Fund and has extensive experience in European public policy and corporate affairs.
European leaders have been in communication with both American officials and the pharmaceutical industry. Along with the recent White House visit by the Irish prime minister, the Irish foreign affairs minister has also traveled to Washington to engage with the commerce secretary.
Ursula Von der Leyen, president of the European Commission, has held discussions in Brussels with the European Federation of Pharmaceutical Industries and Associations, representing the continent’s largest drug manufacturers.
The industry is seizing this moment to advocate for various improvements, such as reducing bureaucratic hurdles.
The European drug lobby has informed Ms. Von der Leyen that companies might move production or investment to the U.S. to minimize their exposure to Mr. Trump’s tariffs, especially given that quicker approvals and better access to funding are making the U.S. an attractive option.
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Several pharmaceutical giants, including Bayer, Pfizer, and Merck, are planning to invest approximately €165 billion in the European Union over the next five years. However, up to half of this investment might move to the United States, according to the federation. This outlook isn’t unique.
“The pharmaceutical sector requires more favorable conditions for production in Europe,” stated Dorothee Brakmann, the head of Pharma Deutschland, which is the largest association of pharmaceutical companies in Germany.
These concerns appear to be valid. Some companies have already started unveiling plans to increase spending in the United States; for instance, Roche recently revealed a $50 billion investment initiative in America, marking the latest in a series of such announcements.
In a commentary published last week, the chief executives of Novartis and Sanofi pointed out that reducing regulations alone would not be sufficient to stop the decline. They claimed that “European price controls and austerity measures diminish the appeal of its markets,” and proposed that the bloc should facilitate increased prices.
Leaders in the industry have also cautioned that tariffs on pharmaceuticals could disrupt supply chains, limit patient access, and hinder research and development efforts.
“There’s a reason why tariffs on medicines are set to zero,” said Joaquin Duato, CEO of Johnson & Johnson, during a recent earnings call. “Tariffs can lead to supply chain disruptions, causing shortages.”
Ms. von der Leyen has echoed these sentiments, warning that tariffs on the pharmaceutical industry could have ramifications for globally interconnected supply chains and the availability of medicines for patients in both Europe and the U.S.
Pharmaceutical tariffs pose another risk for the European Union.
The EU has been working to enhance its capacity to produce generic medications, which are critical for health but generally less profitable compared to brand-name drugs, often manufactured in Asia.
However, if U.S. tariffs force generic drug producers in China and India to seek customers outside the U.S., it might result in an influx of cheaper medications to Europe.
This could complicate the EU’s efforts to build a domestic manufacturing base for generics, while tariffs simultaneously attract brand-name drug production to the United States.
“We believe this is likely to drive increased investment in the U.S.,” commented Diederik Stadig, a sectoral economist at ING. “The European Commission needs to remain vigilant.”
