Trump’s drug tariffs could increase costs and exacerbate drug shortages

President Donald Trump’s planned tariffs on drugs imported into the US could have wide-ranging outcomes for drug makers and American patients, some experts told CNBC.

The job could disrupt complex drug supply chains, raise drug prices in the U.S. and exacerbate critical drug shortages, some health policy experts said. Pharmaceutical companies often rely on a global network of manufacturing sites for the various steps in their production processes.

“We’re already in a state where prescription drugs are out of hand for many,” Mariana Socal, a health policy professor at the Johns Hopkins Bloomberg School of Public Health, told CNBC.

“There’s a risk that we’ll change, trade policies, customs policies, things that will further increase the costs of prescription drugs, more cost to supply chains, distribution networks, and consumers, and worsen the affordability crisis for America,” she said.

This week, Trump doubled plans to impose “major” drug-specific tariffs “soon,” struck stocks of some drugmakers early on Wednesday. He said that on the same day he would suspend sudden tariff rates in dozens of countries following market fallout, but that doesn’t seem to apply to taxation in certain industries such as automobiles, steel, aluminum and pharmaceuticals.

Trump has exempted medicines from his drastic tariffs announced last week. Still, he says that drug obligations encourage manufacturers to move manufacturing operations to the United States when domestic production in the industry has significantly reduced.

However, experts said it is unclear whether tariffs will affect more businesses and create more drugs in the US.

Some drug makers, such as Eli Lilly, Bristol Myers Squibb and Abbvie, may be better than others, as they have large manufacturing plants internationally in the US. The majority of their sites responsible for producing active drug ingredients are also in the United States, he added.

Meanwhile, Novartis and Roche said they are “more at risk” because there are few US plants and the high proportion of international active ingredient sites.

The effects of tariffs appear different depending on the type of drug, experts said. The manufacturers of already inexpensive generic drugs, which make up about 90% of the drugs specified in the US, could be narrowed down most by tariffs, according to Arda Ural, leader of EY Americas Life Sciences.

As these drugs, which are generally much more affordable for patients, have a much lower profit margin than branded drugs and often rely on ingredients made in China and India, tariffs could force some popular drug manufacturers to leave the US market altogether.

According to a 2024 report from RAND, drug tariffs could ultimately undermine the government’s efforts to pay the high costs of healthcare for Americans in the United States about two to three times more than prescription drugs.

Tariffs could exacerbate unprecedented medical shortages in the United States, driven by factors such as manufacturing quality control and a surge in demand. The US has had 270 aggressive drug shortages, and the past three quarters remain unchanged, according to data from the American Health System’s Association of Pharmacists.

However, some drug categories are likely to be more vulnerable to shortages than others when tariffs are enforced, said Malta Wosiska, a senior fellow at the Center for Health Policy at the Brookings Facility.

Common sterile injectable drugs commonly used in hospitals are already prone to shortages and have faced sustained supply problems for many years. These include products such as IV saline bags, cancer chemotherapy drugs, and lidocaine. This is used to paralyze.

Common sterile injectables have complex manufacturing processes and low profit margins, which can make it more difficult for producers to absorb increased tariff-induced costs.

Manufacturers of these injections lock the price, but also have limited their ability to take over the increased costs due to specific contracts with so-called group purchasing organizations rather than the amount of what they buy, Wosiska said. Group purchasing organizations generally last for 1-3 years, broker drug acquisition for hospitals and other healthcare providers, and contracts with manufacturers.

If manufacturers of common sterile injectables are unable to pass on higher costs, they could leave the US market and exacerbate the shortage of those essential drugs, Wosińska said. She said their other option is to cut costs. This is because it can affect the quality of the product and lead to some manufacturers temporarily slowing production due to issues such as contamination.

Generic drugs face similarly low margins, but their manufacturing is less complicated and the market is more competitive. These include common tablets such as high cholesterol statins, multiple blood pressure medications, and metformin for glycemic control.

According to a recent Brookings report by Wosiska, these oral drugs are most used by Americans as approximately 187 billion generic drug tablets and capsules were distributed to retail and postal pharmacies in 2024 alone.

She told CNBC that these drugs act like “spot markets” and that if one source is destroyed by tariffs, pharmacies and buyers can quickly switch between suppliers. Although collections can raise prices, manufacturers of these drugs have fewer binding contracts and are more likely to pass on higher costs than injectable counterparts.

The impact of tariffs on expensive branded drugs with patent protection and not facing competition from generic drugs looks quite different, some experts said. Tariffs on drugs imported from Europe are likely to be the most heavily hit, as a substantial amount of brands of drug production takes place there and takes place in the US.

“Branded products are already manufactured at about 50% in the US, with the main imports being around 35% from Europe,” said EY’s Urals.

There is little or no “manufacturing” for these drugs in China and India,” he said.

Still, branded drugs usually have a higher profit margin than generic drugs and a higher stable supply chain. This makes brand manufacturers better positioned to absorb higher costs from tariffs, to hand them over to payers and ultimately to consumers.

The manufacturers of drugs from certain brands dominate the market, allowing them to raise prices and “American consumers don’t leave any other options because they are protected by patents that no one else has,” says SoCal of Johns Hopkins.

“In tariffs, how much higher are you going to pay for these branded products?” she said.

Patients will find that branded drugs are priced higher than generic medication prices, Wosiska said. The price hike of brand drugs translates directly into increased out-of-pocket spending for people with high commercial insurance plans or high coinsurance interest rates, she noted.

It is still unclear what the Trump tariffs will look like. However, patients with a 20% coinsurance rate find that when tariffs are imposed, their monthly out-of-pocket costs increase as the cost ratio is directly linked to the price of branded drugs.

In contrast, generic drugs are already low prices, so “even if a 25% increase in the $3 drug, it doesn’t really show up for patients,” Wosińska told CNBC. She added that many patients have insurance plans with fixed sharing for these drugs.

But overall, “The main impact on patients’ pocketbooks is indirect. Premiums could rise as drug spending increases,” she said in a Brookings report.

The question is whether manufacturers want to raise prices in the face of a hard hit from patients and lawmakers on both sides of the aisle to charge higher drug prices in the US compared to other countries. Both the Trump and Biden administrations target that imbalance.

In a note on March 28th, Evercore ISI analyst Umer Raffat said he heard from multiple CEOs of the drug “we may have to pass on some of the impact (from tariffs) as a price increase.”

But he said that by doing so, he would “put more fire” criticism of the higher prices of many drugs in the United States compared to Europe. Raffat said it could be backed up “in a big way” and could revive the plan from Trump’s first period, linking people paid in other similar countries with US prices.

Some Wall Street analysts have raised concerns that rebuilding production in the US is difficult, expensive and could take years, making it difficult to rebuild production.

“The global supply chain is complex, and pharma is the most common. It’s not as easy as moving where someone screws a small screw to make an iPhone.”

He said tariffs will return to the US “almost changing manufacturing” as businesses already operate robustly within the country. Seigerman said he expects most large pharmaceutical companies to “establish a goal of waiting until Trump’s presidency considers a more permanent manufacturing decision.”

Some companies have already invested billions to boost US manufacturing. this year, Eli Lily and Johnson & Johnson Both announced new domestic manufacturing investments worth $27 billion and $55 billion, respectively, over the years.

However, some of these drummers have already pushed back tariffs and warn them of the potential impact on industry research and development.

“We cannot infringe these contracts, so we have to eat the costs of tariffs and make trade-offs within our companies,” Eli Lily CEO Dave Licks told the BBC in an interview last week. “Usually, it’s a reduction in staff or research and development and we expect R&D to be the first to come. That’s a disappointing result.”