Since taking office, President Donald Trump has deployed tariffs as a central tool of US foreign and trade policy. The simplistic rationale for setting initial tariff rates confounded trading partners, and subsequent gyrations and legal challenges around the tariffs have continued to unsettle firms and governments alike.
In July, President Trump threatened a 200% tariff on pharmaceutical imports similar to the blanket tariffs the US imposed on steel and aluminium. That has yet to arrive, but its looming threat and the uncertainty created by tariffs’ erratic implementation are already having an impact on trade and investment in the sector. Numerous firms have announced new US investments, but there are also signs that many are taking a wait and see approach before making investment decisions, having initially tried to front load exports to the US.
Tariff threat triggers exports
Irish pharmaceutical exports have already surged this year. ‘Since January, even since March, when the tariff threat came into view, there has been quite an increase in exports to the US ,’ says Eimear O’Leary, director of communications at the Irish Pharmaceutical Healthcare Association (IPHA), which counts Pfizer, GSK, Novartis, Amgen, J&J and Bristol-Myers Squibb among its members. Official statistics show exports of medical and pharmaceutical products to the US rose 153% to €70.8 billion (£61.3 billion) for January to May compared to the same period last year.
Tariffs are bad for economic growth because they raise prices and they raise the cost of production
Steven Durlauf, University of Chicago
While pharmaceutical tariffs had been set at zero, pharma companies made significant capital investments in European hubs such as in Ireland, Belgium, Denmark and Switzerland. Ireland in particular has focused on attracting foreign direct investment in pharmaceuticals for decades, with a surge of investment in recent years. ‘The capital investment gone into the ground in Ireland over the last 10 years has been €15 billion, conservatively, a lot into larger molecule facilities,’ says Matt Moran, a pharma consultant in Ireland and former director of the trade association BioPharmaChem Ireland.
‘The figures for 2024 were roughly €100 billion of pharmaceuticals exported from Ireland, of which €44 billion went into the United States,’ adds O’Leary. In that context, the industry was watching closely when the European Commission President Ursula von der Leyen met Trump in Scotland on 27 July and announced an agreement in which the US imposed a 15% tariff on most EU goods, including pharmaceuticals.
This is a broad framework agreement – detailed trade agreements typically takes years to negotiate. The UK and US announced a similar ‘economic prosperity deal’ in May, with the White House in June noting a commitment to negotiate a preferential agreement on pharmaceuticals, provided the UK complies with ‘certain supply chain security standards’.
However, these agreements are clouded by an investigation of pharmaceuticals and pharmaceutical ingredients that is being conducted by the Trump administration under Section 232 of the Trade Expansion Act of 1962. The outcome of the investigation is not yet known but the Act empowers the president to impose tariffs on goods deemed essential for national security.
The situation was complicated further on 29 August when a federal court ruled that the current US across-the-board tariffs are illegal. The court rejected the Trump administration’s argument that the president had authority to implement the tariffs under the International Emergency Economic Powers Act. The tariffs will remain in place until mid-October, to allow time for an appeal to the Supreme Court. A final ruling on their legality could be many months away.
A 15% tariff might be acceptable to the EU, but the enormous uncertainty and unpredictability in the US tariffs policy is causing more problems for the sector. ‘The big risk is the somewhat capricious nature of tariff-setting policy in the US. The 15% rate for the EU could be revisited,’ says John McHale, an economist at the University of Galway in Ireland.
Bringing back US pharma manufacturing
The US tariffs are intended to reduce the country’s trade deficits in goods and to push industries such as pharmaceuticals to bring more of their manufacturing into the US. A string of announcements this year of big US investments from pharma firms seems to suggest that latter tactic is working. This included AstraZeneca pledging $50 billion by 2030, with the promise of creating tens of thousands of highly skilled jobs. Part of this is a $3.5 billion manufacturing facility in Virginia, which was announced last November.
Meanwhile, Eli Lilly announced in February that it is to double its US manufacturing investment to above $50 billion since 2020, with four facilities, three of which will make active pharmaceutical ingredients for small molecule drugs. In March, Johnson & Johnson said it would invest more than $55 billion into the US over the next four years. In April, Roche pledged to invest $50 billion in the US over the next five years, including new manufacturing plants in Indiana, Pennsylvania, Massachusetts and California. Novartis said it would pump $23 billion into 10 facilities in the US, including seven brand new projects.
There’s a big difference between companies making announcements and really changing their underlying strategy
John McHale, University of Galway
However, there is some scepticism around whether these pledges will bear fruit. ‘There’s a big difference between companies making announcements and really changing their underlying strategy,’ says McHale. Others say tariffs could bring manufacturing back to the US only in certain areas. ‘You may see some reshoring of manufacturing in high-tech equipment and even some of the higher value chemical and pharmaceutical sectors to avoid tariffs,’ says Keith Markus, an international trade specialist at the University of Boulder, Colorado, and formerly a chief economist at the US Statement Department, though he warns this may not lead to any boost in jobs. ‘If you are a US producer facing higher tariffs and higher costs, you’re probably better off investing in automation,’ says Markus.
There could be disruptions to supply chains globally … there could be disruption of ingredient exports from Ireland to US medicines
Eimear O’Leary, Irish Pharmaceutical Healthcare Association
And tariffs alone aren’t the only consideration in choosing where to invest. Industry representatives note that Ireland has been attractive to biopharma thanks to its favourable tax regime, consistent government policy, strong regulatory compliance, an educated English-speaking workforce and access to the EU market. ‘It’s not that pharma can up sticks in the short term and move their manufacturing facilities quickly,’ says McHale.
Bringing new facilities on line is also a lengthy process. ‘You need to build it, qualify it and validate it. You’re ready to go to market in four to five years,’ says Moran. ‘You could possibly shortcut it, but short cutting and pharmaceuticals don’t go together well.’
Uncertainty creates concern for producers
The potential consequences of tariffs have sparked worries in Ireland and elsewhere. The IPHA is inundated with calls each time the US side talks about tariffs, says O’Leary. ‘The level of uncertainty is a cause for concern,’ she adds. ‘There could be disruptions to supply chains globally … there could be disruption of ingredient exports from Ireland to US medicines.’ Moran reckons the tariff ructions have probably frozen new investment decisions in Ireland, though the industry will continue ongoing projects.
Other key players in global pharma manufacturing are also nervous. On 2 April, Trump introduced a 27% rate on imports from India, which then increased to a 50% tariff on certain goods from 30 August as a punitive response to India buying Russian oil. Pharmaceuticals and petroleum products have so far been excluded, but if that changes the consequences could be severe. India is the world leader in manufacturing pharmaceutical active ingredients and supplies large volumes of generic medicines to the US around one-third of the country’s exports. ‘A big question would be whether Indian producers can find other export markets for what are essentially generic products,’ says Markus.
Yet such tariffs would hurt the US too, says Steven Durlauf, an economics professor at the University of Chicago. It’s harder to profitably shift the generics industry to the US – the country already experiences shortages in some low-cost, off-patent medicines – and while the market may accept price rises for patented medications, there is usually far less remove to push up prices for low-cost generics with their lower margins. Recent data indicates that the US imported over $12 billion in pharmaceutical products from India in 2024, with the country being the largest contributor to the US generics market, accounting for almost half of all generic prescriptions in the US in some years.
Firms hope to negotiate exceptions
The picture has been further complicated by sectors and even companies negotiating specific exceptions. Market analysts were taken aback by the announcement that Nvidia and AMD can export to China if they pay the US government 15% of revenues, for example.
This might explain why many industries are not publicly complaining about tariffs. ‘There’s a long line of American producers and manufacturers … who are waiting to get into the White House and talk to the president,’ says Maskus. ‘Keep your head down and see what you can achieve that way.’
Whether tariffs remain, many economists predict that the uncertainty will be bad for the US and the global economy, which could ultimately affect votes. ‘Tariffs are bad for economic growth because they raise prices and they raise the cost of production [in the US],’ says Durlauf. ‘They’ve been implemented in an extremely erratic fashion and uncertainty is the enemy of economic prosperity.’ If the US experiences slow growth and higher inflation, Congress could flip to the Democrats in the midterm elections in 2026, creating pressure to change course on tariffs.
Despite the fanfare around new investments in the US, the large uncertainties around the long-term US trade policy mean many firms may be tempted to wait and see, rather than gamble that the US will stick with its high tariff regime.
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