US President Donald Trump has sparked fresh turmoil in the global pharmaceutical sector by announcing plans to impose escalating tariffs on drug imports to the US, potentially reaching 250%. The plan, which envisions beginning with a “small tariff” that would rise steadily over the next 12 to 18 months, aims to bring more pharmaceutical manufacturing back to US soil as part of the administration’s broader push to reduce reliance on foreign production and strengthen domestic supply chains.
However, this move has raised alarms across the industry, with Australian drugmakers particularly vulnerable. As Australia’s largest pharmaceutical export market, the US accounts for billions in sales, and this latest trade threat could upend supply chains, push up prices, and put pressure on the Pharmaceutical Benefits Scheme (PBS), which plays a crucial role in keeping medicines affordable for Australians.
Escalating tariffs and the US’s push for domestic manufacturing
Trump outlined his new tariff strategy — which goes beyond his previous threat of a 200% tariff on pharmaceuticals — in a phone interview with CNBC on Tuesday morning, noting that he would specify the imminent tariff rate “within the next week or so".
“We’ll be putting, initially, a small tariff on pharmaceuticals, but in one year — one and a half years, maximum — it’s going to go to 150%, and then it’s going to go to 250%,” he said. “We want pharmaceuticals made in our country.”
This new wave of tariffs follows Trump’s May executive order aimed at reducing US drug prices by reviving the “most favoured nation” (MFN) policy. This would tie US drug prices to lower rates in other developed nations, a move already sending shockwaves through the global pharma market — particularly in nations that are major exporters of pharmaceuticals to the US, including Australia.
Last week, the administration sent letters to 17 leading global drugmakers outlining steps they must take to match the MFN price under the policy, including agreeing not to offer other developed nations better prices for new drugs.
Fallout for Australian pharmaceutical companies
If the latest proposed tariffs go ahead, Australia could face a significant financial blow, with estimates that the tariffs could cost the Australian economy up to A$2.8 billion in direct exports and knock-on effects, including impacts on imports third-party countries that rely on Australian products for their own manufacturing.
Australia’s pharmaceutical sector is particularly exposed to these tariffs, given the size of its export market in the US. Last year, Australian pharmaceutical products worth around $2.2 billion were shipped to the US, accounting for nearly 40% of Australia’s total pharmaceutical exports.
Of those exports, about 87% are blood plasma products, meaning Australian giant CSL Limited (ASX:CSL) is likely to be among the hardest hit. The proposed tariffs could cause costs to spike significantly, leading to potential delays in supply chains and higher prices for patients
The proposed tariffs are a major concern for the Australian government as well, with Treasurer Jim Chalmers calling the previously threatened 200% tariff "very concerning” and Reserve Bank of Australia deputy governor Andrew Hauser saying the effects on the global economy will be “profound” and akin to the aftermath of Brexit.
Chalmers has made it clear that the government will not compromise on the integrity of the PBS, which keeps essential medicines affordable by negotiating directly with pharmaceutical companies to subsidise prices, often far below those seen in markets like the US, and has been a target of US industry lobbyists.
The broader impact on Australian pharmaceutical companies
While CSL is expected to bear the brunt of the tariff impact, other Australian pharmaceutical companies are also at risk. The proposed rise in tariffs could lead to:
- Higher costs: Increased import duties will raise the cost of raw materials and finished products, reducing profit margins.
- Strained research and development (R&D): Reduced margins could divert funds away from crucial R&D, hampering innovation and new product development.
- Disruptions to supply chains: Delays in product shipments could affect delivery timelines, potentially leading to shortages and higher prices.
In addition, Australian biotech companies that rely on the US market for investment and research collaboration could see their prospects dim if the tariffs disrupt funding and cross-border partnerships. This growing uncertainty in international trade poses a significant challenge, potentially stifling Australia's broader pharmaceutical sector and undermining its ability to innovate and remain competitive on the global stage.
Looking ahead
As this trade saga continues to evolve, pharmaceutical companies in both Australia and the US are already seeking ways to mitigate the impact of the tariffs. Many are lobbying for exemptions and for a phased-in approach to tariff increases. The Australian government, while steadfast in defending the PBS, is also exploring avenues to diversify its markets and reduce its dependence on the US.
For now, the outlook remains uncertain, but the rising tide of trade protectionism under the Trump administration is likely to lead to a more fragmented and unpredictable global pharmaceutical market. The next few months will be critical in determining how these tensions unfold and what the future holds for drug pricing and access on both sides of the Pacific.