Potential tariffs on pharmaceuticals under the Trump administration would take more time to have an impact on the sector than investors may realize, analysts at Bank of America believe.
US president Donald Trump said on Tuesday that the country would soon be announcing a “major tariff” on pharmaceuticals with the aim of onshoring drug manufacturing.
Bank of America suggests any tariff action will likely follow a lengthy process, suggesting any earnings impact would not materialize until after 2025.
The analysts see a “Section 232 Investigation” as a likely pathway, under the Trade Expansion Act of 1962 led by the US Secretary of Commerce.
“Essentially, the government uses this pathway to determine whether the importation of certain goods poses a threat to national security, and if it does, it can then take action,” they wrote.
Notably, there is a precedent for this pathway: aluminum and steel tariffs during Trump’s first term, which took roughly a year from investigation start to implementation.
In that case, the Commerce Department opened an investigation, held public comment periods, issued a report to the president within nine months, and then Trump had 90 days to take action, analysts wrote.
“These are maximum timelines, which begs the question: could Trump 2.0 move faster than Trump 1.0? It's quite possible,” Bank of America wrote. “Theoretically, if a handful of months were shaved off the process, it suggests drug company tariffs would not likely become effective until late in the year.”
Earnings eyed
As drug companies prepare to report first-quarter results starting April 15, analysts will be watching for any mentions of tariffs in earnings calls.
“The timeline above implies that whatever the impact to drug company EPS could eventually be, it would likely occur downstream of 2025,” they wrote. “Our best guess is that companies won't quantify much of anything really, which would continue to leave investors wondering.”
Shares of pharmaceutical firms traded lower on Wednesday following Trump’s comments. Bristol-Myers Squibb Co (NYSE:BMY, ETR:RM, OTC:BMYMP) shares were down 6%, Merck & Co Inc (NYSE:MRK, ETR:6MK) and Pfizer Inc (NYSE:PFE, ETR:PFE) both fell 3.3% and Johnson & Johnson (NYSE:JNJ) was down 3%.
Pharmaceutical earnings will kick off on Tuesday with J&J's report.