The United States and the European Union have averted a major trade confrontation, but for pharmaceutical manufacturers, this is no cause for celebration. Tariffs will now be applied to medicinal drugs as well. Reuters consulted analysts on the potential cost to the industry. GxP News outlines the key consequences of the decision.
On July 27th, U.S. President Donald Trump and European Commission President Ursula von der Leyen announced a new trade agreement. Although the parties agreed to reduce tariffs from a proposed 30% down to 15%, the deal also includes pharmaceutical products—a key component of European exports to the U.S. Given that the EU accounts for roughly 60% of all U.S. drug imports, the consequences could be painful, both literally and figuratively.
According to Reuters, the agreement entails a 15% tariff on a wide range of European goods, including pharmaceuticals. Previously, drugs were not subject to any tariffs at all. Only a portion of generic drugs are exempt from the new tariff, leaving the remainder to bear the new tax burden.
European analysts have already estimated that the new terms could cost the industry between $13 billion and $19 billion. For context, had the tariff been set at 25% as initially proposed, the collective losses for the U.S. pharma market could have reached $51 billion per year. Against this backdrop, the reached agreement appears to be a compromise, albeit a painful one for manufacturers.
Furthermore, this is not the final chapter. As Reuters notes, the U.S. is continuing an investigation into drug imports on national security grounds. Should that investigation result in the imposition of separate, sector-specific tariffs, the duty could increase manifold. Donald Trump himself did not rule out the possibility of imposing drug tariffs as high as 200% back in July.
Analysts are divided on the likelihood of this outcome. Some believe that no additional tariffs will be imposed on the EU. However, not all share this optimism. ING analyst Diederik Stadig also said that while tariffs on top of the 15% were not expected, even after the conclusion of the national security investigations, nothing is completely clear “until a trade deal is inked.” UBS analyst Matthew Weston said that he expects details of the trade deal to include protective measures for EU pharma exports from the U.S. investigation, especially since such measures are being discussed in negotiations with the United Kingdom and Switzerland.
Stadig estimates that these levies could add $13 billion to industry expenses without any mitigation strategies, and some of that could be ultimately borne by the consumer. Bernstein analyst Courtney Breen puts the additional expenses at $19 billion for the industry, but she notes that companies might be able to absorb some of the costs with the measures they have been implementing — such as stockpiling of drug products and new deals with contract researchers.
Some pharma market players are already restructuring their logistics. For instance, France’s Sanofi announced in July the sale of its New Jersey plant to Thermo Fisher, though it will retain production of its own drugs at the site. Switzerland’s Roche is increasing its strategic stockpiles in the U.S. to mitigate the impact of potential supply disruptions. According to CEO Thomas Schinecker, this is necessary given the ongoing uncertainty.
However, the final outcome of the agreement depends on which specific drugs will be exempt. UBS’s Weston stresses that it remains unclear which generic drugs will actually be excluded from the tariffs—the specific products have yet to be defined. Yet, the market appears to retain some optimism: shares of Sanofi, Roche, and Sandoz Group closed up between 0.5% and 1% on Monday.
