U.S. Trade Policy and the Pharmaceutical Sector: Tariff Exemptions, Supply Chains, and Investment Shifts

The U.S. pharmaceutical sector is undergoing a seismic shift as trade policies reshape global supply chains and investment strategies. With the Trump administration's 100% tariff on branded and patented drugs set to take effect on October 1, 2025, the industry faces a critical juncture. This policy, which grants exemptions to companies constructing U.S.-based manufacturing facilities, underscores a strategic pivot toward domestic production. However, the interplay between trade agreements like the U.S.-Mexico-Canada Agreement (USMCA) and the U.S.-EU trade deal introduces layers of complexity, influencing how firms navigate tariff exemptions and supply chain resilience. For investors, understanding these dynamics is essential to assessing long-term risks and opportunities.

Tariff Policies: A Double-Edged Sword

The 100% tariff on imported branded pharmaceuticals is a blunt instrument designed to incentivize reshoring. According to a report by CNBC, companies must either build U.S. manufacturing facilities or absorb steep costs, effectively forcing a reevaluation of global supply chains U.S. to impose 100% tariff on branded, patented drugs unless firms build plants locally, Trump says^[1]. Generics, which account for 90% of prescriptions, are exempt, mitigating immediate consumer impact. However, tariffs on active pharmaceutical ingredients (APIs) from China and Mexico—peaking at 245% on Chinese APIs—threaten to inflate production costs for generic drugs Navigating U.S. Tariffs in 2025: Impacts on Pharma & Healthcare^[2]. This creates a paradox: while the policy aims to reduce foreign dependency, it risks destabilizing the very supply chains that keep drug prices affordable.

The Trump administration's rationale hinges on national security and trade deficit reduction. Yet, analysts caution that reshoring is neither swift nor inexpensive. Building new facilities in the U.S. can take 5–10 years and requires billions in capital, leaving a gap during which supply chain disruptions and price volatility are inevitable Tariff Update: Impact on Pharmaceuticals and Patient Access^[3]. For example, Eli Lilly's $27 billion investment in four new U.S. facilities, announced in September 2025, reflects this urgency but also highlights the long-term nature of the transition Global drugmakers rush to boost US presence as tariff threat looms^[4].

Trade Agreements: Tariff Exemptions and Structural Constraints

Trade agreements like USMCA and the U.S.-EU deal are shaping how pharmaceutical companies adapt to these pressures. USMCA's rules of origin (ROO) require that 75% of a product's value originate from North America to qualify for duty-free treatment USMCA Rules of Origin and USMCA Compliance — Dimerco^[5]. For pharmaceuticals, this means firms must source APIs and packaging materials regionally to avoid tariffs. The Trump administration's temporary pause on 25% tariffs for USMCA-compliant goods has spurred companies to reassess compliance strategies, with some shifting production to Mexico or Canada to meet regional content thresholds Tariffs are paused for USMCA-compliant goods. How companies are responding^[6].

Meanwhile, the U.S.-EU trade agreement, finalized in July 2025, caps pharmaceutical tariffs at 15%, a stark contrast to earlier threats of 250% levies US-EU Strike Trade Deal: The Impact on Pharma^[7]. This stability has provided relief to firms like Roche, which announced a $50 billion investment in U.S. manufacturing, including a $700 million facility in North Carolina Global drugmakers rush to boost US presence as tariff threat looms^[8]. However, the agreement's limitations remain evident: generic drugs produced in the EU using APIs from China or India still face tariffs based on the origin of those ingredients Trump’s pharma tariffs could raise drug prices for consumers, but ...^[9]. This underscores the fragility of global supply chains, where the origin of a single component can dictate a product's cost and availability.

Investment Trends: Reshoring and Strategic Hedging

Pharmaceutical companies are responding to these pressures with a mix of reshoring and strategic hedging. AstraZeneca's $50 billion commitment to U.S. manufacturing by 2030, including a Virginia facility, exemplifies the scale of these efforts Global drugmakers rush to boost US presence as tariff threat looms^[10]. Similarly, Johnson & Johnson's $55 billion investment plan reflects a broader industry trend of prioritizing domestic production to avoid tariffs and ensure supply chain resilience Global drugmakers rush to boost US presence as tariff threat looms^[11].

Yet, reshoring is not a panacea. The FDA's PreCheck initiative, designed to streamline approvals for new domestic facilities, has accelerated onshoring but cannot offset the time and cost required to build capacity How 100% Pharmaceutical Tariffs Will Impact Domestic Manufacturing and Supply Chains^[12]. Moreover, tariffs on APIs from China and India—key suppliers for generic drugs—pose a persistent risk. A report by Delve Insight notes that these tariffs could drive up generic drug prices, disproportionately affecting lower-income patients Navigating U.S. Tariffs in 2025: Impacts on Pharma & Healthcare^[13].

To mitigate these risks, firms are adopting advanced manufacturing techniques like continuous manufacturing, which reduces costs and improves efficiency Why reshoring drug production means embracing continuous manufacturing^[14]. Additionally, the Trump administration's SAPIR Reserve—a proposed six-month stockpile of critical APIs—aims to buffer against supply shocks How Trump’s API executive order could affect health systems^[15]. While these measures are promising, their success depends on sustained investment and regulatory coordination.

Challenges and the Road Ahead

The pharmaceutical sector's adaptation to U.S. trade policies is fraught with challenges. First, the time lag between policy implementation and operational readiness means supply chain disruptions are inevitable in the short term. Second, the high cost of reshoring—exacerbated by stringent FDA regulations—could deter smaller firms, consolidating the market further. Third, global supply chains remain deeply interconnected; even with U.S. investments, reliance on foreign APIs and packaging materials will persist.

For investors, the key is to differentiate between companies with robust contingency plans and those exposed to regulatory or supply chain shocks. Firms like GSK, which pledged $30 billion in U.S. investments, demonstrate a proactive approach Global drugmakers rush to boost US presence as tariff threat looms^[16]. Conversely, companies lacking diversified sourcing strategies may struggle to absorb tariff-related costs.

Conclusion

U.S. trade policies are redefining the pharmaceutical sector's landscape, with tariffs and trade agreements acting as both catalysts and constraints. While reshoring efforts and strategic investments signal a shift toward domestic production, the sector's reliance on global supply chains remains a vulnerability. For investors, the path forward lies in supporting firms that balance regulatory agility with long-term resilience, ensuring they can navigate the turbulence of an evolving trade environment.