What would happen to the global pharmaceutical industry if the US imposed a 250% tax?

The US's proposal to impose a 250% tax is causing concern in the global pharmaceutical industry because of risks to the supply chain, leading to severe drug shortages.

On August 5, US President Donald Trump said he plans to impose import tariffs on pharmaceuticals of up to 250% - the highest level he has ever proposed. Previously, the pharmaceutical industry was often exempt from trade taxes due to its essential nature. However, Mr. Trump has repeatedly criticized the industry for "unfair" pricing and called on companies to bring production back to the US. "We want pharmaceuticals made domestically," he said on CNBC.

However, the consequences of this policy are not simple, from reshaping business behavior, disrupting supply chains to the risk of drug shortages and directly affecting economies such as Australia and Ireland, two countries with pharmaceutical industries heavily dependent on the US market.

Ambition to restructure the pharmaceutical industry

According to Trump, the tariffs are intended to encourage companies to move pharmaceutical production to the United States. Currently, the United States imports about 80% of its active pharmaceutical ingredients (APIs), most of which come from China and India. However, building a new pharmaceutical plant in the United States takes years, requires approval from the Food and Drug Administration (FDA), specialized equipment and professionally trained personnel.

While large corporations like Pfizer, Merck or Johnson & Johnson can "survive" thanks to control of intellectual property and strong supply chains, generic drug companies operating on thin profit margins will suffer heavy losses. They may be forced to withdraw from the US market, leading to the risk of shortages of basic drugs.

The legal basis for this policy is the International Emergency Economic Powers Act (IEEPA), which is being challenged in federal court. If the court declares the policy invalid, many businesses that have restructured their supply chains will face irrecoverable sunk costs.

Illustration of medicines.

India: Key market faces uncertainty

The huge demand for cheap generic drugs in the US has fueled the Indian pharmaceutical industry for years. Companies like Cipla, Sun Pharma and Dr Reddy’s Laboratories have seized the opportunity, successfully competing with hundreds of drugs that are off-patent in the US. In doing so, they have built a strong foothold in the global pharmaceutical market.

In fiscal year 2024, India exported $8.7 billion worth of pharmaceutical products to the US, accounting for more than 11% of the country's total merchandise exports. 47% of generic drugs consumed in the US originate from India, making the US the largest pharmaceutical export market for the country of a billion people.

The Indian pharmaceutical industry had hoped that generic drugs, which are essential, would be exempted from tariffs. However, Mr. Trump repeatedly announced that he would impose a 25% tax on pharmaceuticals from April 2, then postponed it for 90 days and set a new date of August 1.

Currently, India imports about $800 million worth of pharmaceuticals from the US and imposes a 10% tax. Experts say that even if the US increases tariffs on active pharmaceutical ingredients (APIs), India will still have an advantage if the tariffs imposed on other countries are higher.

Mr. Namit Joshi, Chairman of the Pharmaceutical Export Promotion Council of India (Pharmexcil), affirmed that the US will still depend on countries like India because domestic production costs are too high. Shifting the supply chain to other countries or to the US will take at least 3-5 years.

Daara Patel, secretary general of the Indian Drug Manufacturers Association, said the pharmaceutical industry should not panic. He questioned whether any other country could supply cheap, high-quality drugs in the same quantity as India. He also believed that if the tariff were to rise to 10%, the industry could absorb the cost or pass the burden on to American consumers.

However, if US tariffs exceed 15%, India may be forced to look for new markets such as East Africa or the Middle East. While these markets are less valuable, they are more strategically stable.

Supply chain and financial risks to Australia

As one of the largest exporters of pharmaceuticals to the US, Australia faces serious financial risk if the new tariffs come into effect. Last year, the country exported about 2.2 billion AUD worth of pharmaceuticals to the US, accounting for nearly 40% of its total pharmaceutical exports. Of this, about 87% were plasma products, mainly from CSL Limited.

If the 250% tariff is imposed, Australia could lose up to AU$2.8 billion. The damage will not only come from direct exports but also from the knock-on effect, affecting markets that rely on raw materials from this country. In addition to increased costs, companies will also face supply chain disruptions and reduced research and development (R&D) budgets.

The Australian government has expressed concern. Treasurer Jim Chalmers described the tariffs as “very worrying.” Reserve Bank Deputy Governor Andrew Hauser warned that the impact could be comparable to Brexit. Another risk is Trump’s “most-favored nation” (MFN) policy, which requires pharmaceutical companies not to sell cheaper drugs to other countries, threatening the Pharmaceutical Benefits Scheme (PBS) pricing mechanism that helps keep medicines affordable for Australians.

Australian biotech companies will also find it difficult to raise capital and maintain research collaborations with the US if trade barriers continue to rise.

Ireland: Economic model at risk

Trump’s tariffs could have a profound impact on Ireland. Pharmaceuticals account for the majority of Ireland’s more than €70 billion worth of exports to the US. Major corporations such as Pfizer, Merck, and Eli Lilly have chosen Ireland as a manufacturing hub for exports to the US and globally.

A 15% tariff may be a pain, but a 150-250% tariff would cripple exports and force companies to reconsider keeping production in Ireland. This raises serious questions about the country’s ability to attract foreign investment in the future and the sustainability of its FDI-based economic model.

Another issue is uncertainty. Less than 24 hours before the 15% tariffs were set to take effect, Trump threatened to raise them to 250%. This makes it impossible for businesses to plan long-term, forcing them to prepare for worst-case scenarios.

Even if multinationals prefer to wait and see, Trump’s focus on pharmaceuticals as a major cause of the EU trade deficit suggests that trade tensions will not ease easily. With the US still the world’s largest drug market, any change in trade policy would have a ripple effect.

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Source: https://baolaocai.vn/nganh-duoc-toan-cau-ra-sao-neu-my-ap-thue-250-post878932.html