Medicines have been excluded from the United States' targeted tariff imposition. Not only pharmaceutical and bio industries in Korea and Europe but also large American pharmaceutical companies importing raw pharmaceuticals from abroad cannot avoid being greatly affected by the tariff policy of the Trump administration, but this time, uncertainty has been resolved while avoiding the tariff bomb.
On March 2 (local time), President Donald Trump announced in the White House Rose Garden a plan to impose a basic 10% tariff on all imports and to impose punitive tariffs additionally on about 60 trading countries. He stated that a 25% reciprocal tariff would be imposed on South Korean imports, but medicines were excluded from the final list of tariff impositions.
The pharmaceutical and bio industries analyzed that the opinion that imposing tariffs on medicines would harm the U.S. influenced this decision. However, there are also predictions that the movement to demand domestic production of medicines will continue in line with President Trump's nationalism.
◇Consideration of harm to domestic patients and corporations
In the past, President Trump had suggested the possibility of applying a 25% reciprocal tariff to medicines. Nevertheless, the omission of medicines from the final imposition target reflects the judgment that it could ultimately return as harm to citizens. The White House stated in an official announcement that "essential medicines and medical supplies will be excluded from the application of the tariff policy to avoid adverse impacts on public health."
Previously, American pharmaceutical companies and patient advocacy groups criticized that "tariffs would increase the possibility of drug shortages and reduce patients' access to medicines." The Biotechnology Innovation Organization disclosed that nine out of ten biotech companies rely on imports for FDA-approved drug raw materials.
If tariffs are imposed on imported medicines, manufacturing costs will soar, leading to a rise in drug prices and potential harm to patients. For this reason, medicines have been excluded from trade wars for a long time.
John Crowley, chairman of the Biotechnology Innovation Organization, issued a statement, noting that "the negative consequences of tariffs must be considered" and expressed hope for the development of incentive policies that can secure private sector funding to promote a renaissance in U.S. biotechnology manufacturing in collaboration with the U.S. administration and Congress.
◇“Did lobbying work? National production enhancement policy continues”
There are also words that the lobbying of major American pharmaceutical companies worked. On March 1, Reuters reported that these companies have been lobbying President Trump to apply a phased tariff on imported medicines. The phased tariff is interpreted as a means to reduce the burden of tariffs and buy time to shift manufacturing facilities to the U.S.
Although medicines have been excluded from the tariff target, the industry anticipates that President Trump's nationalism will continue to drive policies that encourage production within the U.S. Currently, many large American pharmaceutical companies produce raw pharmaceuticals in Europe, but President Trump has consistently argued that production bases need to be transferred to the U.S. to lower dependence on foreign sources.
In February, President Trump pressured CEOs of major American pharmaceutical companies, such as Eli Lilly, Pfizer, and Merck (MSD), at the White House to transfer overseas manufacturing bases to the U.S. He stated, "I will impose at least a 25% tariff on medicines imported into the U.S.," but noted, "If production facilities are moved to the U.S., there will be no tariffs."
Subsequently, Eli Lilly, Johnson & Johnson, and others announced new investment plans and began expanding production facilities in the U.S. However, it is anticipated that it will take at least two years for companies to construct new production facilities in the U.S. for raw pharmaceutical production.
◇Resolution of tariff uncertainties for domestic corporations
With the exclusion of medicines from the reciprocal tariff target, domestic pharmaceutical and bio companies have also had a sigh of relief. Medicines represent a smaller share of raw material costs compared to the automotive and steel sectors, so tariffs are believed to have relatively less impact. Nevertheless, if tariffs are imposed, negative effects such as stock price declines or lower revenue estimates are expected. For this reason, domestic companies have been preparing for the imposition of tariffs.
Celltrion, which has a large share of exports to the U.S., transferred nine months' worth of raw material inventory to the U.S. to minimize the impact on sales this year. They plan to export raw pharmaceuticals with lower tariff burdens to the U.S. and expand consigned production through local companies or secure local production facilities. As concerns from shareholders about U.S. tariff policies grew, they also carried out company stock buybacks and cancellations.
SK Biopharm's sales of its epilepsy new drug, "cenobamate," in the U.S. accounted for 80% of last year's sales. Currently, they manufacture raw pharmaceuticals domestically and produce finished medicines in Canada to export to the U.S. However, they have developed a strategy to immediately start local production when necessary upon tariff imposition.
Samsung Bioepis and Huons had the stance that they would watch the final announcement of the U.S. tariff policy. They anticipated that medicines would either be excluded from tariff imposition or have limited impact.
Samsung Bioepis stated, "Since we are already collaborating with several contract manufacturing organizations (CMOs) abroad, if tariffs are decided, we will be able to quickly adjust our strategy." Huons noted, "Our main export product, lidocaine injection, is a basic medicine that is experiencing supply shortages in the U.S., and there are only a few local manufacturers," adding, "Even if tariffs are imposed, the situation is the same with our competitors since most lidocaine products in the U.S. are imported."
Meanwhile, the tariff rates by country announced by President Donald Trump in the White House Rose Garden on that day include 34% for China, 20% for the European Union (EU), 46% for Vietnam, 32% for Taiwan, 25% for South Korea, and 24% for Japan. Tariffs of 36% will be applied to Thailand, 31% to Switzerland, 32% to Indonesia, 26% to India, 24% to Malaysia, 49% to Cambodia, 10% to the United Kingdom, and 30% to South Africa. The effective date will be the 10% basic tariff on the 5th and the country-specific rates on the 9th.