The pharma industry has been left reeling by the recent news of US government trade tariffs, with companies Eli Lilly (Indianapolis, IN, US), Pfizer (New York, NY, US) and Merck & Co (Kenilworth, NJ, US) boosting their US manufacturing presence to avoid a potential 25% tariff on imported pharma products.

Although World Trade Organization rules exempt most pharmaceuticals and their starting materials from tariffs, it is unclear whether the White House will continue to abide by this 30-year-old agreement. At a February 2025 press conference in Mar-a-Lago, Trump hinted that the US will impose a 25%+ tariff on pharmaceuticals in the future, after giving time to US companies to build more manufacturing capacity.

On 4 March 2025, Trump imposed tariffs on most imports from Canada, Mexico and China, set at 25% for Canada and Mexico, and doubled on China from 10% to 20%. These could come into effect as early as 2 April. Canada has responded with its own 25% tariffs on a range of US goods. Meanwhile, the US and the EU are trading threats of tariffs on metals and alcohol.

On 26 February, Eli Lilly announced plans to construct four manufacturing sites in the US at a cost of at least $27 billion. Three of the sites will focus on manufacturing active pharmaceutical ingredients (API), effectively reshoring the company’s small molecule API production. The fourth location will extend Lilly’s injectables production. Other contributing factors for the investment include high global demand for Lilly’s weight loss and diabetes drugs, Mounjaro and Zepbound (tirzepatide).

Canada has responded with 25% tariffs on a range of US goods

Pfizer is also considering moving overseas manufacturing to its existing plants in the US. Pfizer’s CEO, Albert Bourla, stated at the TD Cowen Healthcare Conference on 3 March that if tariffs came into play, “we will try to mitigate by transferring from manufacturing sites outside to manufacturing sites here [in the US].” Bourla described the tariff situation as “volatile…[…] We don’t know what will happen […] We don’t know if the tariffs will be in Canada and Mexico, in China. And clearly, we don’t know what will happen in Europe. But they have other bigger problems now to deal with.”

On 11 March 2025, Merck & Co. opened a $1 billion manufacturing facility in North Carolina to boost production of its blockbuster HPV vaccine, Gardasil. Merck described this as “a crucial component of the more than $12 billion Merck has invested toward US capital investment since 2018, focused on expanding domestic manufacturing and research and development capabilities and creating new jobs in the US, with another $8 billion of US capital investment expected by 2028.”

Pressure may continue to increase on pharma companies to repatriate production to the US, resulting in higher production costs and potentially an inflationary effect on medicine prices too. Alternatively, if pharma companies are prevented from raising prices, this could result in company profit losses. Many Americans are already facing higher consumer price inflation and rising unemployment, driven by the dual effects of widespread layoffs by the US Department of Government Efficiency (DOGE) and trade tariffs, which could result in declining domestic demand for pharma products.

Retaliatory tariffs could lead to a decline in exports

Drug price regulation may also become more pronounced in markets. In the US, price negotiation under the Inflation Reduction Act could become much more entrenched.

Retaliatory tariffs imposed by target countries will make US products less attractive and could lead to a decline in exports and a potential shrinkage of the US workforce of the most affected companies.

Many manufacturers of generics are based in China and India​; generic and biosimilar prescriptions account for 90% of prescriptions filled in the US. Drug shortages were particularly pronounced in 2024, and tariffs could exacerbate those problems in 2025. There would be significant disruption to the global supply chain.

It is difficult to predict how long-standing any trade tariffs will be, and whether deals can be made to lessen potential disruptions. However, this could be significantly disruptive for companies hoping to supply the world’s largest pharma market, and costly for global consumers.