President Donald Trump’s tariffs on Chinese imports have now been fully implemented, affecting all products from the country, including essential pharmaceutical drugs that millions of Americans depend on.
China plays a crucial role in supplying the U.S. with prescription and over-the-counter medications. A large share of these imports consists of generic drugs, which make up 91 percent of all prescriptions filled in the country.
“The Chinese market is a key supplier for key starting materials and [Active Pharmaceutical Ingredient (API)] to the generic supply chain,” said John Murphy, president and CEO of the Association for Accessible Medicines (AAM).
However, he pointed out that China’s role in the final stages of drug manufacturing has diminished. “I will say they’re sort of less important any longer for the actual finished fill and final manufacturing,” Murphy explained. “But really, it’s the rare minerals, the key starting materials which are obviously critical to the supply chain.”
Many industry stakeholders had hoped that pharmaceuticals would be exempt from the tariffs. Some argued that the U.S., as a signatory of the World Trade Organization’s (WTO) 1994 Agreement on Trade in Pharmaceutical Products, was bound by its commitment to eliminate tariffs on many drug-related products. However, China has announced plans to challenge the 10 percent tariffs, claiming they violate WTO rules.
Despite these concerns, a White House official told The Hill that no exceptions would be made, and the administration would not honor the WTO agreement.
U.S. Heavily Dependent on China for Pharmaceuticals
The reliance on China for maintaining a stable pharmaceutical supply chain has been a longstanding issue, drawing attention from lawmakers across party lines.
In 2018, the U.S.-China Economic and Security Review Commission reported that the U.S. was “heavily dependent” on China for both drugs and API. A 2023 analysis by the Atlantic Council confirmed that the value of Chinese-imported APIs had continued to rise in recent years.
Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, noted that this dependence is not unique to the U.S. “The European Union is similarly reliant,” she said.
China’s dominance in pharmaceutical manufacturing grew as it prioritized expanding its drug production capabilities, while U.S. pharmaceutical firms focused on other aspects of the industry.
“What happened is that we developed this huge biotech sector where we have a lot of stuff going on,” de Bolle explained. “The manufacturing market just turned to producing these more sophisticated drugs; the stuff that’s used in treatments, the stuff that’s going through clinical trials.”
As a result, the U.S. transitioned away from producing many of these essential ingredients domestically. “That’s why we went from, you know, producing a lot of these things to not producing many of these things and buying them from elsewhere. And elsewhere eventually became China,” she added.
Tariffs Could Lead to Drug Shortages and Market Exits
The generic drug industry operates on extremely thin profit margins, making any supply chain disruption likely to cause shortages or delays.
“That additional 10 percent tariff is going to have a fairly significant impact on the cost of goods for the generic and by a similar supply chain,” said Murphy. “We don’t hold massive stockpiles of generic drugs in the United States. It’s a fairly just-in-time inventory.”
Murphy warned that some pharmaceutical manufacturers might find it unprofitable to continue producing generic drugs under these conditions, potentially leading to shortages.
Across various industries, analysts have predicted that companies will pass on increased costs from tariffs to consumers. However, in the pharmaceutical sector, some manufacturers may exit the market entirely instead of raising prices. This is partly due to a provision in the Inflation Reduction Act (IRA) that complicates cost adjustments.
The IRA mandates that drugmakers pay Medicaid a rebate if their drug prices rise faster than inflation, a penalty that could deter price hikes.
Tom Kraus, vice president of government relations at the American Society of Health-System Pharmacists, pointed out that this could have severe consequences.
“You’ve got to sort of factor in paying that penalty, which is going to make you less profitable or you’re going to have to drop out of the market,” said Kraus.
He also noted that group purchasing organizations, which help hospitals and pharmacies buy medications at lower costs, may determine that drugs sourced from China are too expensive. In such cases, they might turn to alternative suppliers or abandon those products altogether.
India as a Potential Alternative
India is another major player in API manufacturing. A 2023 study by the United States Pharmacopeia (USP) found that India accounted for 50 percent of API drug master files (DMF), the documents submitted to the Food and Drug Administration outlining API manufacturing processes.
Although India holds a slightly larger share of DMFs, China has significantly expanded its presence in the market. Between 2021 and 2023, China increased its share of DMFs by 63 percent, a trend USP highlighted as an indicator of where API production is heading.
Despite India’s growing pharmaceutical industry, transitioning supply chains from China to India is not a quick or straightforward process.
“There’s plenty of this capacity in India, there’s plenty of this capacity in the European Union and even Canada,” Murphy said. “I think that the problem is there is an excesscapacity. You still are in a situation where it’s going to take some time to scale up additional surge capacity in any one of these places in order to meet the global demand.”
Beyond capacity concerns, Indian manufacturers do not offer the same breadth of pharmaceutical production as China.
“India does not make the range of stuff that China makes,” de Bolle noted. “You can rely on India for some of the over-the-counter medications, you can rely on India for active ingredients that go into vaccines, you can rely on India for antibiotics to a degree.”
However, for many other essential drugs, India’s capabilities fall short.
“When you get into … the rest of it, then it becomes way more complicated,” she added. “And China is pretty much the only market out there.”
As the U.S. pushes forward with its tariffs, pharmaceutical companies and policymakers are now grappling with the reality that shifting away from Chinese drug imports may not be as simple as hoped.