The Tariff Trap: How Proposed U.S. Pharma Taxes Could Backfire on Consumers and the Economy

The U.S. pharmaceutical industry, a linchpin of both domestic health care and global trade, faces a potential $51 billion annual price spike if the Trump administration’s proposed 25% tariff on European drug imports takes effect. A report commissioned by PhRMA and analyzed by Ernst & Young (EY) warns that such tariffs could raise U.S. drug prices by up to 12.9%, destabilize supply chains, and erode the sector’s global competitiveness. The analysis, based on 2023 data showing $203 billion in pharmaceutical imports—73% of which came from Europe—reveals how deeply intertwined the U.S. market is with foreign suppliers, particularly for critical raw materials and finished drugs.

The $51 billion figure stems from two pathways: tariffs on finished pharmaceutical imports and those on intermediate inputs. Roughly 30% of U.S. pharmaceutical imports are raw materials and active pharmaceutical ingredients (APIs) used in domestic production. A 25% tariff on these would raise U.S. manufacturing costs by 4.1%, squeezing profit margins and undermining the competitiveness of U.S.-made drugs, which account for $101 billion in annual exports (25% of U.S. pharmaceutical sales). EY estimates that higher input costs could jeopardize 490,000 jobs tied to pharmaceutical exports—a stark reminder of how global supply chains bind domestic industries to international markets.

The political calculus is equally fraught. The Trump administration’s push for tariffs, framed as a national security measure to reduce reliance on foreign drug production, faces fierce opposition from drugmakers like Roche, which has petitioned for exemptions. Roche argues that tariffs would undermine its ability to offset imports with U.S. exports of diagnostics and drugs. Meanwhile, the 2025 Economic Brief highlights that layered tariffs—such as those proposed on China, Mexico, and the EU—could push the U.S. average effective tariff rate (AETR) to 17%, the highest in decades. This broader context amplifies the risks: while the $51 billion estimate excludes retaliatory tariffs from trading partners, such measures could compound the economic damage.

The uncertainty of price pass-through further complicates the picture. EY notes that wholesalers or retailers might absorb some tariff costs, but even a partial pass-through would hit consumers. For example, if only half of the tariff burden is transferred to drug prices, the annual cost to U.S. patients would still exceed $25 billion—a significant burden in an industry where average annual drug spending per capita already exceeds $1,500.

The stakes extend beyond balance sheets. The U.S. pharmaceutical sector’s reliance on European imports—particularly from Ireland, Germany, and Switzerland—highlights vulnerabilities in its supply chain. Disruptions could delay critical medicines, while retaliatory tariffs could shrink export markets, disproportionately harming companies with large overseas operations. Pfizer (PFE), Merck (MRK), and Johnson & Johnson (JNJ), which derive significant revenue from international sales, face particular exposure.

In conclusion, the $51 billion tariff estimate underscores a stark trade-off: protecting domestic manufacturing could come at the cost of higher drug prices, job losses, and weakened global competitiveness. With U.S. pharmaceutical sales at $393 billion in 2023, even a fraction of the projected price increases would reverberate through the economy. Investors should monitor tariff developments closely, as companies with diversified supply chains—or those lobbying successfully for exemptions—may outperform peers. The PhRMA report serves as a cautionary tale: in today’s globalized economy, protectionism often ends up collateral damage.