US Pharma Tariffs Could Add $51 Billion to Annual Drug Costs, Report Reveals

LONDON: According to a report commissioned by the U.S. trade group for the industry and reviewed by Reuters, a 25 per cent U.S. tariff on pharmaceutical imports would raise U.S. drug prices by nearly $51 billion each year, potentially increasing U.S. costs by as much as 12.9 per cent if the burden is transferred to consumers. The evaluation performed by Ernst & Young revealed that the United States imported $203 billion in pharmaceutical goods in 2023, with 73 per cent sourced from Europe, mainly from Ireland, Germany, and Switzerland. In that year, total U.S. sales of completed pharmaceuticals amounted to $393 billion.

The document, dated April 22 and unpublished, was ordered by the principal U.S. pharmaceutical association, the Pharmaceutical Research and Manufacturers of America, which comprises members such as Amgen, Bristol Myers Squibb, and Pfizer, among others. PhRMA did not promptly reply to a request for comments. The group has contended that tariffs would weaken attempts to enhance domestic manufacturing, which is a priority for U.S. President Donald Trump. For a long time, pharmaceutical products have been exempt from trade wars because of possible damage, yet he has consistently threatened a 25 per cent tax on drug imports. The previous week, the Trump administration declared investigations into drug imports, mentioning national security issues related to dependence on overseas medication manufacturing. The action initiated a 21-day period for public comments as part of the inquiry conducted by the Commerce Department.

Pharmaceutical companies view the investigation as an opportunity to demonstrate to the administration that elevated tariffs would obstruct their ability to quickly increase U.S. manufacturing and to suggest alternatives, stated Ted Murphy, a trade attorney at the law firm Sidley Austin, which is guiding firms on their filings to the Commerce Department. Pharmaceutical companies have similarly urged Trump to gradually implement tariffs on foreign drug products in an attempt to lessen the impact of the fees. On Thursday, Roche, the Swiss pharmaceutical company, announced it is appealing to the U.S. government for exemptions on import tariffs during direct negotiations, claiming that the products it imports into the United States are balanced by its exports of American-manufactured drugs and diagnostics.

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According to the report, production costs represent just one element influencing the prices of new medicines, and it remains uncertain how much of the tariffs on imported intermediate inputs or finished products would be transferred to consumers. Tariffs on imported finished goods might be transferred to consumers by the wholesale or retail distributors who are responsible for paying the tariff. However, if the costs were entirely transferred through increased prices on local sales, EY projects that U.S. drug prices might increase by as much as 12.9 per cent. About 30% of pharmaceutical imports in 2023 comprised components utilized in U.S. production and subsequently exported or sold domestically.

According to the report, tariffs on these items would increase domestic production expenses by 4.1% and weaken the international competitiveness of drugs produced in the U.S. Approximately 25 per cent of pharmaceutical production in the U.S. is sent overseas, amounting to $101 billion in 2023. EY noted that some of the 490,000 jobs linked to exports in the sector might be endangered if increased input costs diminish foreign demand for U.S. pharmaceuticals. The report excluded the effects of potential retaliatory tariffs. The financial effect of this on the U.S.