Proposed Tariffs Could Raise Drug Prices for Americans 165

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President Donald Trump has proposed a new policy that would impose tariffs of up to 250% on imported drugs. The goal of this plan is to incentivize pharmaceutical companies to move their production back to the United States. However, these tariffs could actually lead to higher drug prices, create shortages, and slow down drug innovation.

How Tariffs Affect the Drug Market

The U.S. pharmaceutical market is split into two main types of drugs: branded and non-branded (generics).

  • Generics: These account for about 90% of all prescriptions filled in the U.S. A significant portion of generic drugs and their active ingredients are produced in countries like India, which supplies about 35% of the world’s active pharmaceutical ingredients (APIs). Because of fierce competition in the generic market, these companies operate on small profit margins. If tariffs are imposed, they are more likely to pass the increased costs directly to consumers, which could result in higher insurance premiums.
  • Branded Drugs: While these drugs make up a small share of prescriptions, they account for almost 90% of all U.S. drug spending. Most branded drugs come from the European Union, where about 43% of branded APIs are produced. Since these companies can charge high prices while their drugs are under patent, they may be better able to absorb the cost of tariffs to protect their market share.

However, even if branded drug companies absorb the cost, it still isn’t a good outcome. The profits from these drugs are often reinvested into researching and developing new medicines. The high cost of this process—which can exceed $3 billion for a single new drug—is a major reason drug innovation exists. Increased costs due to tariffs could slow down new drug development, particularly for treatments for rare diseases, known as “orphan drugs.”

Potential for Drug Shortages and Higher Costs

If these tariffs go into effect, pharmaceutical companies would need to completely restructure their supply chains to increase domestic production, a process that would be costly and time-consuming. This could lead to immediate drug shortages. In the first quarter of 2024 alone, over 300 drugs were in short supply, with 70% of those being generics. If shortages occur, consumers may have to switch to more expensive branded drugs as an alternative,

The ultimate result, whether through higher import costs or a shift to more expensive alternatives, would be higher prices and a greater risk of drug shortages for Americans.

U.S. Imports by Country

The U.S. imported $210 billion in drugs and vaccines in 2024. A majority of these came from the European Union, with smaller shares from Switzerland, Singapore, and India. It’s worth noting that even though national security concerns about China often come up in these discussions, China is responsible for a surprisingly small share (3%) of total U.S. drug imports.

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