Concluding a Section 232 investigation into pharmaceuticals launched last year, the Trump administration has announced it will impose tariffs of up to 100 percent on imports of branded pharmaceutical drugs (generic drugs are exempt). While numerous carveouts, exceptions, and exemptions will apply, the proclamation is misguided for many reasons. Most notably, it will harm both American patients and the nation’s drug innovation capacity, even as the administration’s continued fixation on tariffs overlooks far more effective policies to strengthen U.S. biopharmaceutical manufacturing and innovation. With the right mix of policies, the administration could achieve the increase in domestic drug manufacturing it seeks without the harmful side effects that tariffs would bring.
It should be noted that companies exporting from nations with which the United States has recently completed new trade deals will face capped tariffs—15 percent in the case of the European Union, Japan, South Korea, and Switzerland, and 10 percent for the United Kingdom. Moreover, 17 major drugmakers have already entered into so-called “most-favored nation” (MFN) drug-pricing agreements with the U.S. government that would exempt them from the 100 percent tariff. The announcement also gives companies not covered by a trade agreement or an existing MFN deal 120 days to either announce new or expanded manufacturing facilities in the United States or conclude an MFN agreement with the administration.
Thus, while the top-line 100 percent tariff figure sounds—and is—quite high, the numerous carveouts and exemptions mean the effective tariff rate will likely be lower. Nevertheless, this outcome of the Section 232 pharma investigation is misguided. As ITIF has warned, the tariffs will needlessly harm U.S. patients and, ultimately, U.S. biopharmaceutical innovation.
These tariffs will hit American patients—especially those who depend on innovative medicines from foreign drugmakers—extremely and unnecessarily hard. This is especially true for small firms that make treatments for rare diseases (which affect small patient populations) that simply lack the scale to expand manufacturing operations to the United States. For example, the Japanese companies Ono Pharmaceutical and Kyowa Kirin Co. produce innovative treatments for rare gastrointestinal stromal tumors and rare cutaneous T-cell lymphomas, respectively. Meanwhile, the Indian biopharmaceutical company Biocon produces itolizumab, an innovative biologic treatment for acute psoriasis that inhibits the improper immune response that causes psoriatic blemishes. Elsewhere, in Saudi Arabia, ITIF has highlighted breakthrough research into innovative stem cell treatments for leukemia.
Whether the section 232 tariffs raise prices for critical imported drugs to 15 percent, 100 percent, or to some other level, they will needlessly increase the cost of imported medicines Americans depend on and harm patients who benefit from innovations developed around the world to treat or cure difficult diseases.
Another critical problem with these 232 pharma tariffs is that they further entrench the misguided MFN drug price control regime that, as ITIF has documented, is already inflicting tremendous damage on the U.S. biopharmaceutical innovation system. The Trump administration’s MFN price controls build on the previous administration’s price controls for Medicare Part D drugs introduced in 2022 through the Inflation Reduction Act (IRA).
Studies examining the IRA’s impact have found that since its drug-pricing framework (i.e., the proposed legislation) was first drafted in 2021, venture capital funding for small-molecule research and development (R&D) has fallen by nearly 70 percent. Other studies show that since the IRA’s enactment, the number of clinical trial starts for new, unapproved small-molecule medicines has fallen by 25 percent, while clinical trials for new uses of existing small-molecule medicines have fallen by 30 to 45 percent. Drug price controls weaken drug innovation, and by further entrenching the MFN regime through the threat of tariffs, the administration’s Section 232 pharma tariffs will inflict serious long-term damage on the ability of drug innovators worldwide to earn the returns needed to invest in the R&D required to produce the next generation of cures.
Furthermore, extending the tariffs to intermediate ingredients—such as active pharmaceutical ingredients (APIs) and other key starting materials—will amplify the harm. Manufacturers will face higher input costs at all stages of production, not just at the final point of sale, compounding cost pressures across the supply chain. Unlike tariffs on finished branded drugs, which primarily affect the price of the final product, new tariffs on APIs raise costs for all manufacturers that rely on those ingredients, including producers of medicines not themselves subject to the tariff. This approach risks creating supply chain disruptions and price pressures beyond the intended scope of the policy, particularly given that the production of certain critical ingredients is concentrated among a few suppliers.
Finally, U.S. drug manufacturers could be harmed if other nations respond by raising their tariffs to match these newly announced U.S. rates, thus harming exports of American drugs.
If the Trump administration seeks to increase drug manufacturing in the United States—a desirable goal—it should pursue this objective in ways that don’t unnecessarily harm American patients or long-term biopharmaceutical innovation. ITIF has highlighted a wide range of proactive policies that could achieve these aims without the harmful side effects of tariffs.
One approach to strengthen biopharmaceutical R&D and manufacturing while addressing systemic cost pressures would be to expand public-private partnerships that accelerate technological innovation. For example, the National Science Foundation (NSF) could increase support for university-industry research centers working on biopharma production technology and potentially establish new centers. Policymakers should also create an additional Manufacturing USA Institute alongside the National Institute for Innovation in Manufacturing Biopharmaceuticals (NIIMBL) to focus on manufacturing innovations for APIs and generic drugs.
The Trump administration’s Section 232 pharma tariffs will harm patients and both American and global drug innovators—a remedy far worse than the disease. These tariffs should be fully rescinded.
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