On 21 July, US president Donald Trump proclaimed on his Truth Social platform that he plans to introduce punitive import tariffs on generic medicines. The plans – which have not yet been officially confirmed – would allow a two-year tariff-free window for firms to move production to the US, after which a 100% duty will be applied, stepping up to 200% a year later.
How much of this plan will actually materialise is unclear. Several of his previous attempts to introduce trade tariffs have later been softened or reversed (either by courts because they were deemed illegal, or by the president changing his mind). However, his threats of extensive tariffs on imports of branded medicines do seem to have led to various multinational pharmaceutical firms committing to significant investments in US manufacturing capabilities in exchange for tariff waivers.
That’s all very well for a relatively small number of expensive drugs with high profit margins and potentially huge sales that justify investment in expensive US facilities. But it is highly unlikely that the same plan will work for generic drugs. While the US healthcare system pays handsomely for branded drugs, its generics are some of the cheapest in the world.
Generics make up around 90% of US prescriptions by volume, but less than 15% by value. The generics sector includes thousands of different medicines, mostly imported from countries where they can be manufactured cheaply, with razor-thin profit margins that depend on high sales volumes.
Two years is nowhere near enough time to build and validate US production capacity for all the medicines that would be required. Nor is it very likely that cash-strapped generics firms will commit to the billions of dollars of investment this would require, simply on the back of a capricious political threat that could be reversed at the drop of a hat.
More likely – if the tariffs do go ahead – is that where US-made products are available, foreign providers will simply cut their losses and sell their products elsewhere. While for drugs where there is insufficient domestic supply, either tariff costs will be passed on to patients and healthcare providers, or supplies will be cut off leading to a drastic increase in drug shortages.
No comments yet