Bringing US Pharma Home
Udumbara
President Donald Trump said on Aug. 5 that he will gradually increase tariffs on pharmaceuticals from a small tariff, likely 15 percent, to a high tariff of 250 percent over the next 1.5 years. He told CNBC, “We want pharmaceuticals made in our country.” North of 200 percent would certainly do the trick.
The administration’s goals are to add more jobs and secure a strategic U.S. supply of life-saving drugs in case of an emergency like the last pandemic. U.S. pharmaceutical supply lines are currently at risk due to large amounts of critical medicines such as antibiotics, blood-pressure medicine, and active pharmaceutical ingredients (APIs) imported from China, Singapore, and India. These countries are all far away from the United States and are either authoritarian politically or have persisted in buying energy from Russia despite the invasion of Ukraine. So they cannot really be trusted to deliver medicine to the United States if China starts a war, for example.
White House trade adviser Peter Navarro said on Aug. 14 to CNBC that the United States is in a “national security crisis” due to its reliance on foreign producers of pharmaceuticals. He said, “Right now, 60 percent of our API and medicines come from China and India, and India is heavily dependent on China.”
A new executive order to improve U.S. pharmaceutical supply chains will likely include a strategic pharmaceutical reserve of active ingredients, a list of 26 key drugs critical to U.S. health and security, price floors for U.S. producers of key drug ingredients by providing them with long-term contracts to guarantee sufficient demand, and deterrence of dumping by India and China through tariffs.
Buying critical drugs like antibiotics from adversary nations such as communist China is dangerous, given that they could cut America’s pharmaceutical supply for reasons of trade leverage or if a war starts. Beijing could do so by either stopping exports at its own borders or on the high seas through a more general naval blockade if China’s navy, for example, grew to that level of strength in the next 10 or 20 years. It is much safer for the United States to prepare for that eventuality now by building its own pharmaceutical supply chain in U.S. factories or, secondarily, in nearby supply chains like Canada and Mexico that can be secured in an emergency.
Currently, the United States imports $8 billion worth of pharmaceuticals from China and $12 billion from India, including antibiotics and blood pressure medicine. The United States imports $15 billion worth of drugs from Singapore, which gains market share through unfair trade practices such as subsidies. High pharmaceutical tariffs on these countries would help shift drug production to U.S. factories.
Trump’s threat of tariffs on pharmaceuticals is already speeding a return of billions of dollars worth of pharmaceutical investment, drug manufacturing, and jobs to the United States. Merck, which manufactures the cancer medication Keytruda, is moving production of the drug for U.S. consumers to Delaware starting in 2030. Eli Lilly is another pharmaceutical company making new strategic investments in the United States.
Trump is also attempting to lower drug prices in the United States by bargaining with pharmaceutical companies to set their U.S. prices at no higher than they sell the drug to European and other developed nations. The administration calls this its most-favored nation (MFN) policy. The president argues that MFN will put an end to “the free ride of American innovation by European and other developed nations.” It may mean that drug companies raise prices in Europe so that they can decrease prices in the United States.
There is much to agree with in the Trump administration’s new approach to pharmaceuticals. Imposing tariffs on countries that are either authoritarian, or support authoritarian regimes for short-term profit, is the right decision. The United States should never again be reliant on faraway or adversary regimes for critical medicines like antibiotics.
However, the new tariffs should not apply to nearby friendly democracies like Canada. They can also be moderated in European and East Asian democracies whose supply lines can be secured, including through an agreement to refill U.S. strategic pharmaceutical reserves. We can better trust our democratic allies to keep the flow of critical medicines going in an emergency, and so we should moderate tariffs on them where possible, while imposing heavy tariffs on our most dangerous adversaries.
