President Trump's proposed 200% tariff on the pharmaceutical industry would not take effect immediately, instead allowing for a 1 to 1.5-year grace period. Over time, the U.S. pharmaceutical supply chain could undergo a massive shift, becoming less reliant on foreign-made drugs and medical supplies. The Trump administration currently views this dependency as a national security threat.
One week ago, the president warned that long-awaited industry-wide tariffs would be announced "very soon" after a 232 investigation was launched in April. Even with a grace period, the delay will force a complete reconfiguration of overseas supply chains for domestic ones, which could have a significant impact on profit margins for 'Big Pharma' and even affect drug prices.
"A 200% tariff would inflate production costs, compress profit margins, and risk supply chain disruptions, leading to drug shortages and higher prices for U.S. consumers," Barclays analysts wrote last week.
UBS analysts warned that the Trump administration's 12- to 18-month tariff grace period is "insufficient," arguing that reshoring efforts would require a lot more time.
"We would usually think of 4 to 5 years as the timeline to move commercial-scale manufacturing to a new site," the analysts wrote.
According to the industry trade group Pharmaceutical Research and Manufacturers of America, even a 25% tariff on pharmaceutical imports could drive up U.S. drug prices by $51 billion annually, raising prices by as much as 12.9% if costs are passed on. The group slammed Trump's proposal as "counterproductive" to health outcomes. Yet, as we've come to understand, these tariffs are merely economic tools to secure better trade deals or, in this case, to force corporations to reshore production.
To visualize the U.S.' heavily dependent medical supply chain on overseas trading partners, research firm BryceTech released an in-depth graphic on Tuesday, highlighting the industry's deep overseas dependencies. The graphic suggests that significant domestic investment will be required—echoing UBS's view that a 12- to 18-month grace period is insufficient to reshore production at scale.
The illustration reinforces UBS's warning that a 12- to 18-month grace period is far too short to reshore production at scale, signaling the need for increased time. A larger takeaway is that these supply chains need to be reshored as the world fractures into a bipolar state, and definitely before the 2030s.
