The EU and the US reached a trade agreement on Sunday 27 July 2025. However, there is still some confusion around the level tariffs for the pharmaceutical sector.
An ongoing investigation under Section 232, which explores national security implications related to a number of sensitive sectors, including the pharmaceutical supply chain, is set to conclude in the coming weeks. This could have an impact on the level of tariffs applied to pharma companies.Â
So, what is the Trump administration aiming to achieve? We see three primary objectives.
First and foremost, it wants to reshore pharmaceutical production, create domestic jobs, and reduce US dependence on foreign supply chains—part of a broader push for economic and healthcare security.
Second, there’s a tax angle. Many pharmaceutical companies manufacture drugs in countries like Ireland, where favorable tax structures lower their overall tax burden. Onshoring production would allow the US to collect more corporate tax revenue.
Third, tariffs could be used as leverage to address the persistent issue of drug pricing disparities. US consumers often pay significantly more than patients in other developed nations, and the administration may use tariffs to pressure companies into narrowing that gap. Even if pricing and manufacturing are separate issues, they remain politically intertwined.
Impact on the Industry
In the short term, the impact on pharma companies is limited. Many have pre-emptively increased inventories in the US to insulate against near-term disruptions. Medium term, the industry has already responded with over $200 billion in announced investments to expand US domestic manufacturing capacity.
The Trump administration has publicly praised several companies for these efforts, signaling a willingness to allow time for implementation before enforcing new tariffs. The reality is that building out production infrastructure cannot happen overnight.
From a business standpoint, pharmaceutical tariffs may not be as disruptive as those in other sectors. With high gross margins, pharma companies can absorb modest increases in costs. However, the complexity lies in transfer pricing. Many firms assign a high internal value to drugs manufactured abroad, partly due to the intellectual property attached to them. This practice shifts profits—and therefore taxes—to lower-tax jurisdictions. If tariffs are implemented, this accounting approach would likely come under scrutiny.
Interestingly, US-based pharmaceutical companies may be more exposed than their non US counterparties. Many American firms have moved both manufacturing and IP offshore to benefit from tax arbitrage. In contrast, foreign firms often maintain significant US production capacity and have less incentive to use aggressive transfer pricing.
Conclusion
Pharma tariffs remain a moving target, given the ongoing section 232 investigation. As it stand today, the impact of tariffs can be absorbed, but we await further details on the exact implementation. Overall, the direction is clear, greater US control over the pharmaceutical supply chain, increased tax revenue, and the potential to use additional tariffs via section 232 as a stick in the drug pricing discussions.
By Servaas Michielssens, PhD, CFA, Head of Healthcare, Thematic Global Equity at Candriam
