The pharmaceutical industry relies on a globally integrated supply chain to source raw materials, active pharmaceutical ingredients (APIs), and finished medicines. Any disruption to this network can have significant consequences for drug availability, affordability, and research and development (R&D) investment.
Recent proposals by the US government to impose tariffs on pharmaceutical imports from key trade partners – including the EU, China, India, Canada, and Mexico – have raised concerns about market instability. The US imports a substantial volume of APIs and finished medicines, many of which are essential for patient care, meaning these tariffs could have far-reaching implications.1
Here, we explore the potential impact of tariffs on pharmaceutical supply chains, pricing, investment and industry strategy.
Supply chain vulnerabilities
Introducing tariffs on pharmaceutical imports could lead to significant disruptions, particularly for generic medicines, which often rely on lower-cost API sourcing.3
Pharmaceutical supply chains are highly dependent on international trade. China and India together supply more than 70 percent of APIs used in US drug manufacturing, while Europe remains a key supplier of high-value biologics and specialised medicines.2
Introducing tariffs on pharmaceutical imports could lead to significant disruptions, particularly for generic medicines, which often rely on lower-cost API sourcing. The American Hospital Association has warned that increased costs and delays in sourcing critical drugs could lead to shortages of essential medicines, including antibiotics, oncology treatments, and cardiovascular drugs.3
Additionally, tariffs could increase lead times for manufacturing, as companies navigate customs barriers and seek alternative suppliers. For complex treatments such as biologics and vaccines, which require highly specialised production facilities, shifting supply chains is neither simple nor immediate.
Impact on drug pricing and affordability
Increased API costs may force some manufacturers to reduce output or exit the market entirely, reducing competition and potentially driving price inflation”
Rising production costs due to tariffs could lead to higher drug prices, particularly in markets where pricing pressures are already a concern. Generic drug manufacturers, which operate on slim profit margins, are likely to be most affected. Increased API costs may force some manufacturers to reduce output or exit the market entirely, reducing competition and potentially driving price inflation.
For branded pharmaceutical companies, the impact may be less immediate due to their larger profit margins. However, in the long term, increased costs could be passed on to healthcare systems, insurers, and ultimately, patients. The Association for Accessible Medicines has warned that such cost increases could counteract efforts to improve patient access to affordable medications.4
Reshoring and diversification of pharmaceutical supply chains
In response to potential tariffs, pharmaceutical manufacturers could consider shifting production closer to domestic markets to reduce exposure. However, reshoring production is a long-term strategy that requires significant investment in infrastructure, regulatory compliance, and workforce development.
A more immediate response may involve diversifying API and raw material sourcing to non-tariffed regions. However, this strategy carries risks, including quality control challenges and regulatory hurdles in qualifying new suppliers. Some companies may also choose to absorb short-term cost increases rather than overhaul their supply chains.
Foreign direct investment and industry strategy
The EU, for example, has signalled that it may impose reciprocal measures if pharmaceutical tariffs are enacted [which] could… create further regulatory complexity for manufacturers operating across multiple markets”
The proposed tariffs could deter foreign direct investment in pharmaceutical manufacturing. If tariffs lead to increased uncertainty and reduced profitability, multinational pharmaceutical firms may reconsider planned investments in the US market. Similarly, trade restrictions could discourage overseas investors from funding US-based R&D initiatives.5
There is also the potential for retaliatory tariffs from affected trade partners. The EU, for example, has signalled that it may impose reciprocal measures if pharmaceutical tariffs are enacted, potentially affecting US drug exports.6 Such actions could disrupt global pharmaceutical trade flows and create further regulatory complexity for manufacturers operating across multiple markets.
Potential for drug shortages
Tariff-related cost increases and supply chain disruptions could exacerbate existing drug shortages, particularly for essential medicines that already face production challenges. Generics, vaccines, and complex biologics are particularly vulnerable, as their manufacturing often depends on multi-step processes involving raw materials and intermediates from multiple countries.
The role of policymakers and industry advocacy
Trade negotiations will play a crucial role in determining how tariffs are implemented and whether exemptions are granted”
Given the risks associated with pharmaceutical tariffs, industry organisations are engaging with policymakers to seek exemptions for critical medicines and APIs. The US House Speaker has indicated that the White House is considering targeted exemptions for the pharmaceutical industry, recognising the sector’s importance to public health.7
Trade negotiations will play a crucial role in determining how tariffs are implemented and whether exemptions are granted. Industry groups continue to advocate for policies that protect pharmaceutical supply chains while ensuring that national trade objectives do not compromise patient care.
Conclusion
The introduction of tariffs on pharmaceutical imports presents significant risks to global supply chains, drug pricing, and market stability. While pharmaceutical manufacturers may explore reshoring or supply chain diversification, these strategies take time and may not fully offset cost increases.
Policy decisions in the coming months will determine the extent to which tariffs impact the industry. Engaging with regulators and ensuring that trade policies support the continued availability of essential medicines will be critical in preventing negative consequences for healthcare systems and patients worldwide.
As the pharmaceutical industry navigates these challenges, strategic adaptation and international cooperation will be key to maintaining supply chain resilience and ensuring continued innovation in drug development.
References
1. AHA Urges Administration To Grant Exceptions For Essential Medications. [Internet] American Hospital Association. 2025. Available from: https://www.aha.org/news/headline/2025-02-05-aha-urges-administration-grant-exceptions
2. Trump Tariffs Threaten US Drug Supplies And Risk Higher Prices, Trade Groups Warn. [Internet] Fierce Pharma. 2025. Available from: https://www.fiercepharma.com/pharma/trump-tariffs-could-stymie-us-generics-boost-layoffs-and-raise-drug-prices-industry-groups
3. Trump Faces Pressure From US Industry Over China Tariff On Medicines. [Internet] Reuters. 2025. Available from: https://www.reuters.com/world/us/trump-faces-pressure-us-industry-over-china-tariff-medicines-2025-02-06/
4. Healthcare Groups Urge White House To Grant Tariff Exceptions. [Internet] Becker’s Hospital Review 2025. Available from: https://www.beckershospitalreview.com/supply-chain/healthcare-groups-urge-white-house-to-grant-tariff-exceptions.html
5. Fact Sheet: President Donald J. Trump Imposes Tariffs On Imports From Canada, Mexico, And China. [Internet] White House. 2025. Available from: https://www.whitehouse.gov/briefing-room/statements-releases/2025/02/01/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/
6. A Group Fighting The Fentanyl Crisis Says Trump’s Tariffs Could Make The Problem Worse. [Internet] Business Insider. 2025. Available from: https://www.businessinsider.com/trump-tariffs-fentanyl-crisis-mexico-canada-harm-reduction-expert-2025-2
7. Trump’s Tariffs’ Possible Side Effects Include Making Pain Relievers And Antibiotics More Expensive. [Internet] Business Insider. 2025. Available from: https://www.businessinsider.com/trumps-tariffs-china-mexico-canada-could-make-medicine-more-costly-2025-1
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