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In a decisive overnight move, former President Donald Trump signed an order that introduces tariffs on imported patented drugs and their active ingredients. Although the order is now official, these tariffs are not set to be enforced immediately; they will take effect in a few months.
The aim behind these tariffs is to exert pressure on international pharmaceutical manufacturers to relocate their production facilities to the United States. This strategy is also intended to encourage these companies to negotiate deals to sell their medications directly to the American market.
According to a senior administration official, these anticipated tariffs will become effective for major drug manufacturers later this summer, following a 120-day implementation timeline. In contrast, smaller companies will receive an extended period of 180 days before the tariffs are applied to them.
The senior official expressed confidence in the plan, stating, “We anticipate that the majority of the world’s patented pharmaceuticals will be produced within the US by that time. They’ve had ample warning, and we are proceeding with this initiative.”
This new order also outlines several exemptions from the full 100 percent tariff. Notably, any company that agrees to participate in Trump’s “Most Favored Nation” initiative will be exempt. Additionally, pharmaceutical companies that opt to shift their production to the US will benefit from a reduced tariff rate of 20 percent.
But even without taking those steps, many foreign drugmakers may end up avoiding the hefty tariff because of broader trade deals that several countries have already made with the Trump administration. Companies in the European Union, Japan, South Korea, Liechtenstein and Switzerland will only be subject to a pre-existing 15 per cent tariff, while UK companies face just a 10 per cent tariff.
Australian exports are subject to a baseline 10 per cent tariff, but despite pre-existing free trade agreements with the US, none have been struck with Trump over pharmaceuticals.
Australia’s Pharmaceutical Benefits Scheme has also been a target of ire among Trump’s trade advisors.
The senior official declined to say how many companies would be hit by the 100 per cent tariff.
Pharmaceuticals are one of Australia’s biggest exports to the US, amounting to about $1.6 billion in 2023-24.
The new drug tariffs would represent an initial step toward Trump’s pledge to reconstruct his aggressive trade strategy after the Supreme Court ruled in February that some of his most significant and far-reaching tariffs were unconstitutional.
Until now, many of the tariffs that Trump has levied on other countries have excluded prescription drugs.
The administration has already negotiated deals with more than a dozen drug companies to sell certain medications directly to consumers as part of a “Most Favoured Nation” pricing initiative aimed at lowering drug prices. As part of those deals, the drug makers escape tariffs for three years in exchange for increased manufacturing investment in the US.
The initiative includes selling medications directly to consumers on TrumpRx, but that measure only covers a limited number of drugs so far, many of which have generic alternatives that can be found cheaper elsewhere.
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