Insulin, heart treatments and antibiotics have flowed freely across many borders for decades, exempt from tariffs in a bid to make medicine affordable. But that could soon change.
For months, President Trump has been promising to impose higher tariffs on pharmaceuticals as part of his plan to reorder the global trading system and bring key manufacturing industries back to the United States. This month, he said pharmaceutical tariffs could come in the “not too distant future.”
If they do, the move would have serious — and wildly uncertain — consequences for drugs made in the European Union.
Pharmaceutical products and chemicals are the bloc’s No. 1 export to America. Among them are the weight-loss blockbuster Ozempic, cancer treatments, cardiovascular drugs and flu vaccines. Most are name-brand drugs that yield a large profit in the American market, with its high prices and vast numbers of consumers.
“These are critical things that keep people alive,” said Léa Auffret, who heads international affairs for BEUC, the European Consumer Organization. “Putting them in the middle of a trade war is highly concerning.”
European companies could react to Mr. Trump’s tariffs in a range of ways. Some pharmaceutical companies trying to dodge the tariffs have already announced plans to increase production in the United States, which Mr. Trump wants. Others could decide to move production there later.
Other companies appear to be staying put, but could raise their prices to cover the tariffs, pushing up costs for patients. And higher prices could affect not only American consumers, but also patients in Europe. Some companies have begun to argue that Europe should create more favorable conditions for their businesses by dismantling some of the rules that keep drug prices down.
Or some middle ground could play out: Companies might shift their financial profits to the United States for accounting purposes to avoid import charges, even as they leave their physical factories overseas to avoid the expenses of moving and challenges of having to set up new supply chains.
Ms. Auffret’s group has already warned European officials that they must not hit back at an attack on the important industry by tariffing American drugs in return: Tit for tat would come at too serious of a cost to European consumers.
But the pharmaceutical sector is complicated. Agreements with insurance companies and government agencies can make it difficult to rapidly adjust prices for branded drugs, while government regulations can make moving both a challenge and a long-term commitment. The upshot is that no one can confidently predict the outcome.
“We haven’t tariffed pharmaceuticals in a very long time,” said Brad W. Setser, an economist at the Council on Foreign Relations who has closely studied the tax rules that incentivize overseas production.
Even as Mr. Trump has paused his so-called “reciprocal” tariffs in favor of an across-the-board rate of 10 percent during the hiatus, he has left in place some industry-specific tariffs and made clear that computer chips and pharmaceutical products would be next. The United States recently kicked off investigations into both sectors, a first step toward hitting them with tariffs.
Many industry experts expect that the new tariffs could be 25 percent, in line with those on steel, aluminum and cars.
For the countries at the center of Europe’s drug industry, the possible tariffs are particularly worrisome. That is especially true for Ireland, where pharmaceuticals make up 80 percent of all exports to the United States.
Many drug companies originally moved to Ireland because it offers very low corporate tax rates. But it has also worked to develop its pharmaceutical industry and offers access to a highly skilled work force.
In recent years, the sector has grown rapidly. More than 90 pharmaceutical companies are now based there, according to Ireland’s Foreign Direct Investment Agency, and many of the biggest American drugmakers have operations in the nation. Last year, Ireland’s pharma industry exported 58 billion euros, or about $66 billion, in pharmaceutical and chemical products to the United States.
“The Irish are smart, yes, smart people,” Mr. Trump said in March, while Prime Minister Micheál Martin of Ireland was visiting the White House. “You took our pharmaceutical companies and other companies,” he said. “This beautiful island of five million people has got the entire U.S. pharmaceutical industry in its grasps.”
Now, tariffs could chip away at the benefits of manufacturing there — which is Mr. Trump’s goal.
“In the U.S., we don’t make our own drugs anymore,” Mr. Trump said last week from the Oval Office, adding that “the drug companies are in Ireland.”
Firms are already bracing. Companies have been rushing to export their pharmaceuticals from Ireland and into the U.S. market before the gauntlet falls, statistics suggest.
Nor is Ireland the only country affected. Germany, Belgium, Denmark and Slovenia are also major exporters.
“It’s an enormous issue for Europe,” said Penny Naas, who leads a competitiveness program for the think tank the German Marshall Fund and has long worked in European public policy and corporate affairs.
European leaders have been reaching out to both American officials and the industry. In addition to the Irish prime minister’s recent visit to the Oval Office, the Irish foreign affairs minister traveled to Washington to meet with the commerce secretary.
Ursula Von der Leyen, the president of the European Commission, the European Union’s executive arm, has met in Brussels with the European Federation of Pharmaceutical Industries and Associations, the lobby group representing Europe’s biggest drugmakers.
The industry is leveraging the moment to push for wish-list items, like less red tape.
The European drug lobby group told Ms. von der Leyen that companies could shift production or investment toward the United States to limit their exposure to Mr. Trump’s tariffs, especially when faster approvals and easier access to capital are making America more attractive.
At least 18 members of the group, which includes Bayer, Pfizer and Merck, have planned nearly €165 billion in investments in the European Union over the next five years. As much as half of that could shift to the United States, the federation said. Nor is it alone in that prediction.
“Pharma needs more attractive conditions to produce in Europe,” said Dorothee Brakmann, the director of Pharma Deutschland, Germany’s largest association of pharmaceutical companies.
Such warnings seem to have teeth. Some companies have begun to lay out plans to spend more in the United States; the firm Roche last week announced a $50 billion American investment plan, the latest in a string of such announcements.
In commentary published last week, the chief executives of Novartis and Sanofi suggested that less regulation was not enough to stem the bleeding. They argued that “European price controls and austerity measures reduce the attractiveness of its markets,” and that the bloc should pave the way for higher prices.
Industry executives have also warned that tariffs on the sector could disrupt supply lines, impair patient access and dampen research and development.
“There’s a reason” that tariffs on medicines are set to zero, Joaquin Duato, the chief executive of the drugmaker Johnson & Johnson, said on a recent earnings call. “It’s because tariffs can create disruptions in the supply chain, leading to shortages.”
Ms. von der Leyen has emphasized similar concerns, warning that tariffs on the pharmaceutical sector risk “implications for globally interconnected supply chains and availability of medicines for European and U.S. patients alike.”
Pharmaceutical tariffs also hold another danger for the European Union.
The bloc has been trying to build up its ability to manufacture generic drugs, which are medically essential but much less profitable than the name-brand products, and are frequently made in Asia.
But if U.S. tariffs mean that generic drug manufacturers in China and India are suddenly looking for customers outside of America, it could send a flood of cheaper-than-usual pills toward Europe.
That could make it even more difficult for the European Union to establish a domestic manufacturing base for generics, even as tariffs lure name-brand drug production toward the United States.
“We do think that it’s likely that this is going to cause increased investment in the U.S.,” said Diederik Stadig, a sectoral economist at ING. “The European Commission needs to be on the ball.”
Source: nytimes.com
