Trump says pharma tariffs will entice back drug production. They won’t.

BRUSSELS — After hitting just about every other industry he can think of (albeit with a brief pause), Donald Trump’s long-promised tariffs on drugs are around the corner.

“We’re going to be announcing very shortly a major tariff on pharmaceuticals,” he said at a dinner of the National Republican Congressional Committee last week.

“And when they hear that, they will leave China. They will leave other places because they have to sell — most of their product is sold here and they’re going to be opening up their plants all over the place.”

Are they, though? 

It’s true that the branded pharmaceuticals — the household names that left the U.S. for Ireland and its favorable tax regime — need a continued presence in the U.S. because it’s such a big market for pharma, and due to its “relatively short time-to-market for innovative medication,” according to analysts at ING.

“Given their presence all over the globe and their higher margins, some shuffling in their supply chains as a result of tariffs is likely,” they wrote in a briefing.

But will it lead to the full-scale exodus that Trump has promised?

In 2024, pharmaceuticals were the EU’s largest export to the U.S., worth a reported $127 billion.

“You don’t move manufacturing overnight,” said Justine Fassion, an international trade lawyer at Sidley. 

“Manufacturing in the pharma industry is subject to various regulatory constraints, so it can take time before you can move production from one country to another,” she said in an interview with POLITICO earlier this year.

Building a manufacturing plant from the ground up generally takes three to five years, much of it related to the local permitting process for utilities, disposal and other community concerns, according to Marta Wosińska, a senior fellow at the Brookings Institute.

“What makes local permits challenging is that they can vary dramatically across locations, increasing the risk for potential delays,” she noted in a briefing.

It’s also extremely costly.

Recent infrastructure expansions in the United States by big-name pharmaceuticals have been led by Eli Lilly’s $23 billion investment into multiple facilities. Merck recently opened a $1 billion plant in North Carolina, where Novo Nordisk is also undertaking a $4.1 billion fill and finish expansion. And Johnson & Johnson is ploughing $2 billion into a biologics facility in New Jersey.

But the cost of site construction might rise further because of the 25 percent tariff Trump has imposed on steel, a major input in industrial construction, she added.

“The same concern applies to manufacturing equipment, which is all stainless steel,” she wrote.

The largest pharma companies warned through their European industry association, EFPIA, that pharma research, development and manufacturing is likely to be redirected toward the U.S., when they sat down for crisis talks with European Commission President Ursula von der Leyen this week.

But the group — conscious that interinstitutional negotiations are about to begin on a Brussels plan to overhaul landmark EU pharma legislation, and the industry’s existing lucrative patent protection with it — added that the migration could be put on hold if Europe “delivers rapid, radical policy change.”

That would mean “strengthening rather than weakening Europe’s intellectual property provisions,” the group said in an emailed statement, as well as “achieving a competitive EU market that attracts, values and rewards innovation in line with other economies at the forefront of patient care.”

Alexander Natz, secretary-general of Eucope, which represents mid-sized pharma companies, said: “Many of our members don’t have factories in the U.S. We can’t just build … within two months, factories in the U.S.”

Smaller and medium-sized pharma companies tend to have one or two innovative products, he said, and they “don’t have a product portfolio to say, ‘well, OK, I can level out the impact of the tariffs on product A, which is produced in that territory, by increasing sales potentially in product B.”

The larger companies that Trump is hoping to entice back might also not think it’s worth the bother.

“These tariffs might not be around forever,” said Jeremy Leonard, managing director of industry services at Oxford Economics.

“It may actually be in your interest to suck up the tariffs and just ride out the storm,” he said, arguing that those companies might instead choose to reduce investments in research and development rather than switch production.

“There certainly are some companies who will do that calculus,” he said. “I don’t think it’s necessarily going to mean a sort of tidal wave of movement, quite frankly.”

What actually encourages companies to move — as Trump alluded to when he called out Dublin — isn’t tariffs, said Ned Hux, a pharmaceutical and life sciences tax partner at PwC. 

“Targeted tax incentives, streamlined regulatory approvals, and prioritized government procurement could make U.S.-based production more attractive and competitive,” he said, adding those measures could come in the form of tax deductions, lower tax rates on manufacturing activity, tax credits and low-interest financing for domestic production. 

“These approaches offer a proactive way to strengthen U.S. pharmaceutical independence without disrupting global trade relationships,” he added.

And while Trump has criticized Ireland for attracting big pharma companies, he’s also suggested he wants to reshore production of generic drugs from India and China, with an eye to making medicines cheaper for Americans.

ING warns, however, that production in the U.S. would lead to higher prices, as U.S. labor and production costs are higher than those in India, for instance.

Generics lobby Medicines for Europe says that its own analysis of API (active pharmaceutical ingredient) supplier locations for the U.S. market demonstrated that for almost 700 APIs approved in the U.S., Europe is the only supplier.

“The U.S. alone will struggle to build competitive manufacturing and strategic autonomy,” said its director general, Adrian van den Hoven. 

“The knock on effect of tariffs will be to drive up costs even higher for American patients.”

Giedre Peseckyte contributed to this report.