How Pharmaceutical Tariffs Could Worsen Generic Drug Shortages

President Trump recently signed an executive order imposing tariffs on imported goods during a “Make America Wealthy Again” trade announcement event in the Rose Garden at the White House on April 2, 2025. This event, dubbed “Liberation Day”, saw the announcement of sweeping new tariffs targeting goods imported to the U.S. from countries like China, Japan, and India. While pharmaceuticals were initially excluded from these tariffs, there are looming threats of imposing tariffs on imported drugs, despite it being a violation of World Trade Organization rules.

The administration’s rationale behind these tariffs is to incentivize drug manufacturers to bring their manufacturing facilities back to the U.S. and reduce reliance on countries that could disrupt trade in case of emergencies. The majority of brand name drugs used in the U.S. are imported, so tariffs could lead to higher prices of branded products but also encourage onshoring of manufacturing facilities. Several major drug companies have already announced new U.S. manufacturing investments in anticipation of potential trade penalties, although reshoring manufacturing facilities takes time to complete.

Generic drugs, which make up over 90% of prescriptions dispensed in the U.S., are heavily reliant on active pharmaceutical ingredients (API) from countries like India and China. With only a limited number of generic drug ingredients produced domestically, imposing tariffs on API could exacerbate existing shortages or create new ones while possibly raising prices.

Experts have warned that tariffs on pharmaceuticals could result in higher prices for branded products and exacerbate generic drug shortages. A study found that 83% of the top 100 prescribed generic medications are import-dependent to some extent, highlighting the importance of reshoring generic manufacturing to ensure a stable drug supply.

The impact of tariffs on drug prices will depend on factors like the degree of tariff exposure and manufacturers’ ability to pass on price increases. While branded pharmaceuticals with higher profit margins may be able to absorb some of the tariff costs, generic drugs, particularly small molecules, could face challenges in passing on price increases due to regulatory constraints like the Medicaid rebate program.

In conclusion, while tariffs may incentivize increased U.S. manufacturing of brand-name drugs, they could also lead to challenges for generic drug manufacturers, potentially resulting in product discontinuations, cost-cutting measures that compromise quality, and further exacerbation of drug shortages. It is crucial to carefully consider the implications of imposing tariffs on pharmaceuticals to ensure continued access to affordable and essential medications for patients.