Trump’s huge tariffs on some drugmakers could end up backfiring

By Tami Luhby, CNN

(CNN) — President Donald Trump’s order to levy 100% tariffs on certain patented pharmaceutical products and ingredients takes effect on Tuesday.

But experts question the extent to which the move will achieve its goal of spurring more drug manufacturing in the US. That’s because the burden will fall most heavily on small and midsize companies that generally don’t have the wherewithal to shift or expand production in America.

Instead, experts say, the tariffs could force these drugmakers to close or merge with larger rivals, which could in turn reduce the number of medications that they provide to patients and could lead to higher prices – which is the last thing Trump says he wants.

What’s more, the tariffs could dampen the discovery of new medicines since these smaller firms tend to be more innovative, some experts argue.

The tariffs were announced in April, but the president had long signaled that he would target the industry, which had largely escaped such levies for decades due to a longstanding international agreement designed to keep essential medicines flowing freely across borders.

However, there are many provisions and exceptions that will limit the tariffs’ impact. Notably, the levies won’t apply to the larger pharma companies that have signed “Most Favored Nation” agreements. These manufacturers have promised to beef up their domestic production, as well as provide their medicines at lower prices to Medicaid and TrumpRx, the administration’s direct-to-consumer clearinghouse. They make the vast majority of brand-name drugs.

Also, generic medications, orphan drugs for rare diseases and certain specialty medicines are largely exempt. Patented pharmaceutical products from the European Union, Switzerland, Japan and South Korea, which have existing bilateral trade deals, will be subject to a 15% tariff rate, while those from the United Kingdom will not be subject to the levies. And companies that have an agreement to produce more in the US will face a 20% tariff.

That leaves a small share of pharmaceutical manufacturers and their products that will be subject to the 100% tariff rate, industry analysts said when the levies were unveiled.

Who gets hit

There are more than 100 drugmakers that make at least one drug that is not exempt, according to a preliminary analysis from the Brookings Institution. A majority of these companies do not have any production facilities – instead, they use contract manufacturers to make their medications, said Marta Wosinska, a senior fellow at Brookings.

There is a “crazy level” of competition for contract manufacturing capacity in the US, so it would be very expensive for these drugmakers to make more of their products domestically, she told CNN.

“Their pockets are not as deep,” she said of the smaller companies.

Many may have no choice but to sell themselves to larger players in the industry if they can’t negotiate deals with the White House, Wosinska said.

Patients with conditions that aren’t treated by major pharmaceutical manufacturers could feel the biggest impact since they often depend on medications made by smaller companies. The prices of these medicines will likely rise, said Mollie Sitkowski, an international trade lawyer with Faegre Drinker. Plus, she expects there will be fewer new drugs released in coming years.

The Biotechnology Innovation Organization, which represents smaller and mid-sized drugmakers, wrote to the Commerce Department earlier this month warning that “tariffs that punish U.S. innovators are counterproductive and risk slowing the investment and innovation needed to be successful.”

“The reality is that tariffs on America’s medicines will raise costs, impede domestic manufacturing, and divert scarce resources away from research and development critical to maintaining American biotech leadership,” wrote John Crowley, BIO’s CEO.

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