Trump pharmaceutical tariffs may raise costs, worsen drug shortages

President Donald Trump’s planned tariffs on pharmaceuticals imported into the U.S. could have wide-ranging consequences for drugmakers and American patients, some experts told CNBC. 

The duties could disrupt the complex pharmaceutical supply chain, drive up the costs of medication within the U.S. and exacerbate shortages of critical medicines, some health policy experts said. Drugmakers often depend on a world network of producing sites for various steps of the production process. 

“We’re already in a state where prescribed drugs are unaffordable to many,” Mariana Socal, a health policy professor on the Johns Hopkins Bloomberg School of Public Health, told CNBC. 

“Anything that we modify, any trade policies, any tariff policies, anything that further increases the associated fee of prescribed drugs, be it in the provision chain, the distribution network, risks increasing costs to the buyer even further and just worsening the affordability crisis for drugs in America that we have had for a very long time,” she said. 

Trump this week doubled down on plans to impose “major” pharmaceutical-specific tariffs “very shortly,” which battered the stocks of some drugmakers early Wednesday. He said he would pause steep tariff rates on dozens of nations following a market fallout that very same day, nevertheless it doesn’t appear to use to levies on specific industries like autos, steel, aluminum and pharmaceuticals. 

Trump exempted pharmaceuticals from his sweeping tariffs unveiled last week. Still, he has said duties on drugs will encourage drugmakers to maneuver manufacturing operations into the U.S. at a time when domestic production within the industry has shrunk significantly.

But experts said it’s unclear whether tariffs will influence more corporations to make more drugs within the U.S. It will cost drugmakers billions of dollars and take at the least several years for them to achieve this, they added. 

Some drugmakers, akin to Eli Lilly, Bristol Myers Squibb and AbbVie, could also be higher positioned than others to weather tariffs because they’ve more major manufacturing plants within the U.S. than internationally, TD Cowen analyst Steve Scala said in a note last week. The vast majority of their sites liable for producing the lively ingredients in drugs are also within the U.S., he added. 

Meanwhile, Novartis and Roche “look more in danger” because they’ve few U.S. plants and a better share of lively ingredient sites which might be international, Scala said.

The impact of tariffs will look different depending on the kind of drug, experts said. Manufacturers of already cheaper generic drugs, which account for about 90% of the medicines prescribed within the U.S., could get squeezed essentially the most by tariffs, in response to Arda Ural, EY’s Americas industry markets leader in health sciences and wellness. 

Those medications, that are generally much more cost-effective for patients, have far lower profit margins than branded drugs and infrequently depend on ingredients made in China and India, so tariffs could force some generic drugmakers to depart the U.S. market altogether. 

Pharmaceutical tariffs could ultimately undermine the federal government’s efforts to rein within the high costs of health care within the U.S. Americans pay around two to 3 times more for prescribed drugs than people in other developed countries, in response to a 2024 report from RAND. 

The tariffs could worsen the unprecedented shortfall of drugs within the U.S., which is driven by aspects akin to manufacturing quality control and demand surges. There are 270 lively drug shortages within the U.S., which has remained unchanged for the past three quarters, in response to data from the American Society of Health-System Pharmacists.

But some drug categories will likely be more vulnerable to shortages than others if tariffs go into effect, said Marta Wosińska, a senior fellow on the Brookings Institution’s Center on Health Policy.

Generic sterile injectable drugs, that are commonly utilized in hospitals, are already more susceptible to shortages and have faced persistent supply issues for years. Those include products like IV saline bags, cancer chemotherapy drugs and lidocaine, which is used to numb pain.

Generic sterile injectables have complex manufacturing processes and low profit margins, which could make it harder for his or her producers to soak up tariff-induced cost increases. 

Manufacturers of those injections even have limited ability to pass on cost increases as a result of certain contracts with so-called group purchasing organizations that lock in the costs but not the amount of what they buy, Wosińska said. Group purchasing organizations broker drug acquisitions for hospitals and other health-care providers, and their contracts with manufacturers generally last one-to-three years.

If manufacturers of generic sterile injectables cannot pass on higher costs, they might exit the U.S. market and worsen shortages of those essential drugs, said Wosińska. She said their other option is cutting costs, which is “concerning” since it could affect a product’s quality and lead some manufacturers to temporarily decelerate production as a result of issues like contamination. 

Generic oral drugs similarly face low margins, but their manufacturing is less complex and the market is more competitive. These include common pills akin to statins for prime cholesterol, multiple blood pressure medications and metformin for blood sugar control. 

Those oral drugs are used essentially the most by Americans, as about 187 billion generic drug tablets and capsules were allotted in retail and mail pharmacies in 2024 alone, in response to a recent Brookings report by Wosińska.

She told CNBC that those drugs function more like a “spot market,” where pharmacies and buyers can quickly switch suppliers if one source is disrupted by tariffs. While levies may drive up prices, manufacturers of those drugs have fewer binding contracts, allowing them to pass on higher costs more easily than their injectable counterparts can, in response to Wosińska.

The impact of tariffs on costly branded medications, which have patent protections and do not face competition from generic drugs, will look quite a bit different, some experts said. Tariffs on medications imported from Europe would likely hit the toughest, as a major amount of branded drug manufacturing is finished there and within the U.S. 

“Branded products are already predominantly manufactured within the U.S. at about 50%, and the first importation is from Europe at about 35%,” said EY’s Ural. 

There’s “little to no manufacturing” of those drugs in China or India, he said. 

Still, branded drugs typically have higher profit margins and more stable supply chains than generic medications. That makes branded manufacturers higher positioned to soak up higher costs from tariffs or pass them onto payers – and ultimately, consumers. 

Since manufacturers of a given branded drug monopolize its market, they may raise its price, leaving “the American consumer with no other alternative because those products are protected by patents that nobody else has,” Johns Hopkins’ Socal noted.

“With tariffs, the query will grow to be, how much higher prices are we going to pay for these branded products?” she said.

Patients will likely notice higher prices for branded drugs greater than increases to generic medication prices, Wosińska said. A price hike on a branded drug would directly translate to higher out-of-pocket spending for people in high-deductible business insurance policy or with high coinsurance rates, she noted. 

It’s still unclear what Trump’s tariffs will appear to be. But a patient with a 20% coinsurance rate could see their monthly out-of-pocket expenses rise if tariffs are imposed, since their share of the associated fee is directly tied to the branded drug’s price.

Against this, generic medications have already got lower cost points, so “even when a $3 drug increases by 25%, that shouldn’t be going to be something that may really show up for patients,” Wosińska told CNBC. She added that many patients have insurance policy with fixed co-pays for those drugs. 

But overall, “the first impact on patient pocketbooks could be indirect—premiums would likely rise because the payer spending on drugs increases,” she noted in her Brookings report. 

The query is whether or not manufacturers will want to boost prices as they face fierce blowback from patients and lawmakers on each side of the aisle for charging higher drug prices within the U.S. in comparison with other countries. Each the Trump and Biden administrations have targeted that imbalance. 

In a March 28 note, Evercore ISI analyst Umer Raffat said he heard from multiple CEOs of pharmaceuticals that “they might should pass on among the impact [from tariffs] as a price increase.”

But he said doing so will “add more fire” to criticism of the upper prices of many drugs within the U.S. relative to Europe. Raffat said it could backfire “in an enormous way,” and will revive a plan from Trump’s first term that ties U.S. prices to those paid in other similar countries. 

Some corporations have already invested billions to spice up U.S. manufacturing. This yr, Eli Lilly and Johnson & Johnson each announced latest domestic manufacturing investments value $27 billion and $55 billion, respectively, over several years.