For decades, insulin, cardiac treatments, and antibiotics have crossed numerous borders without restrictions. Customs duty exemptions have helped make medications affordable. However, this could soon change.
President Trump has been voicing plans for high tariffs on pharmaceuticals as part of a strategy to revamp the global trading landscape and stimulate domestic manufacturing. This month, he mentioned drug tariffs could be expected “in the near future.”
If implemented, this decision could lead to significant and unpredictable repercussions for medicines produced in the European Union.
Pharmaceuticals and chemicals are the top export to the US. This includes various profitable products such as popular weight-loss drugs, cancer therapies, cardiovascular treatments, and flu vaccines.
“These are vital items that ensure lives,” remarked Léa Auffret, head of international affairs at Beuc, a European consumer organization. “It’s alarming to potentially involve them in a trade conflict.”
European firms may respond to Trump’s tariffs in several ways. Some pharmaceutical companies, eager to avoid tariffs, have already announced plans to boost production in the US, aligning with Trump’s vision. Others might consider shifting their production there later.
Alternatively, some firms may choose to remain but increase prices to offset the tariffs, consequently raising patient costs. Rising prices could impact both European and American patients. Certain companies have begun arguing that Europe must create more business-friendly terms by easing regulations that keep drug prices low.
There might also be a middle ground where companies adjust their financial interests to the US for accounting reasons to dodge import fees.
Auffret’s organization has cautioned European officials against retaliating with tariffs on American medicines in response.
Navigating the pharmaceutical sector is intricate. Insurance contracts and government regulations can complicate abrupt pricing adjustments for branded drugs, making long-term commitments challenging. Consequently, no one can predict outcomes with confidence.
“We haven’t encountered tariffs on medicines for quite some time,” noted Brad W. Sesser, an economist with the Council on Foreign Relations, who has researched the tax regulations encouraging overseas production.
Even if Trump postpones the so-called “mutual” tariffs for a full 10% rate during the transition, he has indicated that specific industry tariffs are forthcoming, revealing that computer chips and pharmaceuticals are next in line. Recently, the US initiated an investigation into both sectors, marking the initial step toward imposing tariffs.
Many industry analysts predict that new tariffs could reach 25%, similar to those already imposed on steel, aluminum, and automobiles.
Potential tariffs are particularly concerning for the pharmaceutical industry in Europe, especially in Ireland, where pharmaceuticals account for 80% of exports to the US.
Many pharmaceutical firms relocated to Ireland due to its low corporate tax rates. However, they also benefit from a robust workforce skilled in pharmaceutical development.
The sector has grown swiftly in recent years, with over 90 pharmaceutical companies currently operating there, as reported by the Foreign Direct Investment Agency. Many major US drug manufacturers also have a significant presence in the country. Last year, the Irish pharmaceutical sector exported 58 billion euros, or about $66 billion, worth of drugs and chemicals to the US.
“The Irish population is intelligent,” Trump remarked during a March visit from Irish Prime Minister Micheal Martin to the White House. “You trained at our pharmaceutical companies and other firms,” he continued, referencing “this beautiful island of 5 million people, where the entire US pharmaceutical industry keeps an eye.”
Currently, tariffs could diminish the manufacturing advantages in Ireland, aligning with Trump’s intentions.
“In the US, we no longer produce our own medications,” Trump stated from the Oval Office last week. “Pharmaceutical companies are based in Ireland,” he added.
Companies are already expanding their operations. Firms are hurrying to export medications from Ireland to the US before potential barriers arise, as statistics indicate.
Ireland stands out as the only unaffected nation, while Germany, Belgium, Denmark, and Slovenia serve as key exporters.
“This poses a significant issue for Europe,” observed Penny Nurse, who directed the competitiveness program at the German Marshall Fund think tank and has extensive experience in European public policy and corporate relations.
European leaders are reaching out to both American officials and industry members. Following his visit with the Irish Prime Minister, the Irish Foreign Minister also traveled to Washington to confer with the Secretary of Commerce.
Ursula von der Leyen, president of the European Commission, convened in Brussels with the European Pharmaceutical Industry Association, the lobbying group representing Europe’s largest pharmaceutical firms.
The industry is seizing opportunities to advocate for reduced regulatory burdens.
European pharmaceutical lobbyists conveyed to von der Leyen that companies might relocate production or investment to the US in response to Trump’s tariffs, particularly if they encounter expedited approvals and improved access to capital.
At least 18 members of this group, including Bayer, Pfizer, and Merck, plan to invest nearly 165 billion euros in the European Union over the next five years, with half of that potentially relocating to the United States. However, this forecast may not encompass all potential shifts.
“Pharmaceutical companies require more favorable conditions to produce in Europe,” stated Dorothy Blackman, head of Pharma Germany, the country’s largest pharmaceutical association.
Such warnings appear to carry weight as companies begin to strategize increased spending in the US. Recently, Roche announced a $50 billion investment plan, marking the latest in a series of similar announcements.
In a recent commentary, the CEOs of Novartis and Sanofi suggested that reduced regulations alone won’t suffice to prevent the current downturn. They asserted that “European price control and austerity measures will diminish market appeal,” and urged the bloc to pave the way for higher pricing.
Executives in the industry are also cautioning that tariffs could disrupt supply chains, impair patient access, and weaken research and development efforts.
“There’s a reason” drug tariffs remain at zero, stated Joaquin Duatto, CEO of Johnson & Johnson. During a recent earnings call, he added, “Tariffs create disruption in the supply chain and lead to shortages.”
Von der Leyen emphasized similar worries, noting that tariffs on the pharmaceutical sector could impact “globally interconnected supply chains and the availability of medications for both European and American patients.”
Pharmaceutical tariffs also threaten the European Union with another risk.
Many generics are typically manufactured in Asia, where efforts are underway to bolster the production of essential but less profitable medications.
Yet, if US tariffs prompt Chinese and Indian generic manufacturers to seek non-US markets, this could inundate Europe with cheaper drugs.
This influx might complicate the EU’s efforts to establish a domestic base for generics, even as it entices the US to produce well-known brand-name medications.
“We anticipate this may result in increased investment in the US,” indicated Diederik Stadig, a sector economist at ING. “The European Commission must act urgently.”
Source: www.nytimes.com
