Trump's Tariff Threats: Drugmakers Rush Shipments to US

In the ever-evolving landscape of pharmaceutical supply chains, the specter of tariffs looms large. President Donald Trump's renewed threat of potential pharmaceutical tariffs has sent shockwaves through the industry, prompting some drugmakers to expedite shipments to the U.S. ahead of the anticipated April 2 tariffs announcement. This strategic move underscores the industry's proactive approach to mitigating potential disruptions and ensuring the continuity of supply.



The tariff threats have significantly impacted the supply chain logistics of pharmaceutical companies, leading to increased volatility and uncertainty. For instance, some drugmakers are taking the unusual step of sending more medicines by air to the U.S., two executives and two logistics firms said amid fears President Donald Trump's April 2 tariffs announcement could include products made in Europe. This shift to air freight, which is quicker but significantly pricier, highlights the urgency and concern among pharmaceutical companies. Companies are "scenario planning" and "stockpiling" in the United States to mitigate the immediate blow of tariffs if they are implemented. For example, one of the executives said his company was "scenario planning" for possible tariffs and shipping more medicines by air using global cargo and transport firms including the United Parcel Service Inc (UPS.N) and Germany's DHL (DHLn.DE). Additionally, the second executive at a drugmaker said his company was "stockpiling" in the United States, the pharma industry's biggest market worth about $630 billion, a step aimed at easing the immediate blow of tariffs if they are implemented.

The tariff threats have also led to increased shipping volumes, with DHL saying it had seen a rise in pharmaceutical exports by air from Europe, but did not give a reason for the increase. This surge in air exports is above average, indicating a proactive response by pharmaceutical companies to secure their supply chains against potential tariffs. Furthermore, the Biotechnology Innovation Organization (BIO) survey found that 94% of companies polled said they expect tariffs on the EU to drive up manufacturing costs, and 82% of respondents figure tariffs on Canada will increase production costs. These findings underscore the financial and operational challenges that pharmaceutical companies face due to tariff threats.

To mitigate these disruptions, pharmaceutical companies are exploring various strategies. For example, Eli Lilly announced a $27 billion investment to build four new production facilities in the U.S., more than doubling the sum the company has earmarked for American production since 2020. Similarly, Johnson & Johnson plans to spend $55 billion in the U.S. over the next four years, with a significant portion going toward the construction of new manufacturing sites. Merck also announced a $1 billion investment into its U.S. vaccine manufacturing footprint, with plans to pour an additional $8 billion into U.S. manufacturing by 2028. These investments aim to reduce reliance on imported materials and enhance domestic production capabilities, thereby mitigating the impact of potential tariffs.

The potential long-term effects on the pharmaceutical industry if tariffs are implemented could be significant and multifaceted. According to the information provided, nearly 90% of U.S. biotech companies rely on some imported materials for at least half of their FDA-approved products. This reliance on imports means that tariffs could disrupt supply chains, increase manufacturing costs, and ultimately affect the availability and affordability of medicines for patients.

For instance, a BIO survey conducted in February found that 94% of companies polled said they expect tariffs on the EU to drive up manufacturing costs. Similarly, 82% of respondents figure tariffs on Canada will increase production costs, compared to 70% of respondents on China tariffs and 56% on India tariffs. These increased costs could lead to higher prices for consumers and potentially reduce access to essential medications.

Moreover, the survey results suggest that the timeline for companies to adjust their supply chains in response to tariffs is onerous. On the question of how much time companies expect it will take to tweak their supply chains in light of the tariff threat, 44% of respondents said the process is likely to take more than two years. Thirty-six percent of respondents said they expect those changes to take between one and two years to implement, while just 21% said they think they could get that work done in less than 12 months. This indicates that the industry would face a prolonged period of uncertainty and potential disruption.

In response to these potential disruptions, some drugmakers have already begun to invest heavily in U.S. manufacturing facilities. For example, Eli Lilly announced a $27 billion commitment to build four new production facilities in the U.S. over the next five years. Similarly, Johnson & Johnson plans to spend $55 billion in the U.S. over the next four years, with a significant portion of that sum going toward the construction of new manufacturing sites. These investments suggest that companies are preparing to mitigate the risks associated with tariffs by increasing domestic production.

However, the survey also highlights concerns about the potential impact of tariffs on research and development (R&D). Specifically, 50% of the companies polled said they expect proposed tariffs on the EU will force them to search for new research and manufacturing partners, with around half of the respondents also noting potential European duties could necessitate reworking or delaying regulatory filings overseas. This could slow down innovation and the development of new treatments, further impacting the industry's long-term prospects.

In summary, the implementation of tariffs on pharmaceuticals could have long-term effects on the industry, including increased costs, supply chain disruptions, and potential delays in R&D. These factors could influence investment decisions, with companies likely to prioritize domestic manufacturing to mitigate risks. However, the transition to increased domestic production will take time and may not fully offset the negative consequences of tariffs in the interim.