President Donald Trump is pledging to target the pharmaceutical industry with tariffs even while pausing many of his global levies for 90 days, threatening to disrupt international supply chains and raising the prospect of a clash between drugmakers and insurers that could determine whether patients are hit with higher costs.
Trump said Tuesday that his administration will “be announcing very shortly a major tariff on pharmaceuticals,” a bid to force companies to make more of their medicines in the United States. On Wednesday, Treasury Secretary Scott Bessent said a 90-day pause Trump declared on most of his country-specific “reciprocal” tariffs would not apply to sector-specific tariffs such as pharmaceuticals.
But raising tariffs on prescription drugs could carry additional risks for the new administration, as well as for drug manufacturers and insurance companies.
How much U.S. patients feel the effects of tariffs depends on whether pharmaceutical companies seek to pass the costs on to others in the medical system. If they do, a key question for many consumers is whether insurance companies would seek to offset higher prices through larger co-payments, higher insurance premiums or more restrictive coverage plans.
“If the tariff cost can be passed on to consumers, the pharmaceutical companies will happily do that,” said Brad Setser, a senior fellow at the nonpartisan Council on Foreign Relations. But if insurers balk at paying higher prices as a result of tariffs, the drugmakers could have to absorb the costs themselves, largely undoing tax advantages they’ve reaped by moving their profits abroad, he said.
“You could get a standoff,” he said, as each side maneuvers for leverage. “If it leads to people being denied drugs because they can’t afford them, that’s a tragedy.”
The prospect of tariffs highlights the global chain behind medicines that many Americans rely on. It is common for companies to make the active ingredients in a drug abroad and finish and assemble the medications in the U.S. Many cheap generic drugs, which help lower prescription drug costs, are made in India and China. Over the years, the United States’ reliance on foreign sources for key pharmaceutical ingredients has raised national security concerns.
Pharmaceutical stocks initially fell Wednesday before Trump posted on social media that there would be a pause on many new tariffs, sending stocks rallying broadly. Pharmaceutical Research and Manufacturers of America, a trade group representing large drugmakers, didn’t respond to a request for comment. AHIP, a group representing health insurance plans, said tariffs shouldn’t justify raising prices that it already considers exorbitant.
While details have yet to be declared, Wall Street analysts, lobbyists and close observers are expecting the president to impose tariffs by claiming that importing certain products presents a threat to national security. That is a different mechanism than the global and country-specific tariffs that the administration unveiled last week.
Such a process, called a Section 232 investigation, generally lasts several months before changes take effect. “An investigation does not compel the President to take action, and it could also be that the drug industry negotiates a favorable outcome by making various concessions,” Bank of America analysts wrote in a note to clients Wednesday.
Although Trump’s announcement of broad tariffs on April 2 exempted pharmaceuticals, lobbyists for the industry have said they still expected the administration would impose drug tariffs.
“They’re shocked that he would take this measure,” one lobbyist for pharmaceutical firms said last week, speaking on the condition of anonymity to describe private conversations. “We have never, never tariffed pharmaceuticals in a trade war like this,” he said. “We have never sought to use people’s lives and health as a bargaining chip in a trade policy, never.”
Any increase in drug prices would probably be most pronounced for patients taking brand-name, patent-protected medications that have higher list prices, affecting those with high-deductible plans, said Marta Wosińska, a senior fellow at the Brookings Institution.
“It would show up in higher premiums for health insurance,” she said, particularly for employer-sponsored plans that have fewer protections against increases than Medicare and Medicaid.
In a paper last month, Wosińska raised a hypothetical in which Denmark-based Novo Nordisk’s blockbuster weight-loss drug Wegovy was subject to tariffs, while its biggest U.S. competitor, Eli Lilly’s Zepbound, wasn’t materially affected. That could make it harder for Novo to raise the price, she wrote.
Wosińska said she also is concerned about the impact of tariffs on companies that make generic injectable drugs — including cancer medications — and operate on razor-thin margins.
“What I worry about is we actually are going to see some manufacturers walking away from this market and saying, ‘I can’t make money,’” she said. While companies generally take pains to avoid exiting a market and causing a shortage, it could be different if they can blame it on tariffs, she said.
David Risinger, an analyst at Leerink Partners, wrote in a note to clients Tuesday that the Trump administration might not want to target generic drugs, citing a lobbyist. Many of the active ingredients in generic drugs are made in China and India. If tariffs are broadly applied, “there is a risk of US drug supply disruption,” he wrote. He added that the lobbyist said Indian manufacturers are “actively lobbying in Washington and working with the White House to minimize damage from tariff proposals.”
Some analysts have advised pharmaceutical companies to eat the costs of tariffs rather than pass them along to consumers.
“Price hikes to compensate for tariffs may backfire in a big way,” Umer Raffat, an analyst at Evercore ISI, wrote last month, pointing to how the far lower cost of many drugs in Europe has emerged as a political issue. Trump in his first term pursued a policy that would have tied U.S. drug prices to what other countries pay, before backing away from it. “The sticker shock may amplify the push” toward linking U.S. prices with foreign ones, Raffat wrote.
Pharmaceutical executives have said little publicly on tariffs as they lobby behind the scenes, but Eli Lilly CEO David Ricks told the BBC last week that his company would probably have to absorb the cost of tariffs, leading to a reduction in staff or research and development.
“It’s a pivot in U.S. policy and it feels like it’ll be hard to come back from here,” he said.