Insulin, cardiac treatments and antibiotics have flowed freely across many borders for decades, and are exempt from tariffs to make the drug affordable. But that could change soon.
For months, President Trump has pledged to impose high tariffs on drugs as part of his plan to rearrange the global trading system and bring major manufacturing back to the US. This month he said tariffs on drugs could come “in the not-so-distant future.”
If so, this move would have serious and very uncertain consequences of drugs made in the European Union.
Pharmaceuticals and chemicals are exports of the block to America. These include the massive weight loss hits, cancer treatments, cardiovascular medicines, and influenza vaccines. Most are name branded medicines that bring great profits in the American market, with high prices and huge numbers of consumers.
“These are important things that keep people alive,” said Léa Auffret, head of international affairs at Beuc, a European consumer organization. “It's very concerning to put them in the middle of a trade war.”
European companies could respond to Trump's tariffs in a variety of ways. Some pharmaceutical companies seeking to avoid tariffs have already announced plans to increase production in the US, which Trump hopes. Others could later decide to move production there.
Other companies appear to remain, but they have raised prices to cover the fees and pushed up patient costs. In addition, rising prices could affect patients in Europe as well as American consumers. Some companies are beginning to argue that Europe should create more favorable terms for businesses by dismantling some of the rules that keep drug prices down.
Or, there could be some degree of intermediate ground unfolding. Companies may move financial interests to the United States for accounting purposes to avoid import fees and to avoid import fees.
Auffret's group has already warned European officials that they should not fight back against attacks on key industries by tariffs on American drugs in return.
However, the drug sector is complicated. Contracts with insurance companies and government agencies can make it difficult to quickly adjust the prices of branded drugs, but government regulations can move both challenges and long-term commitments. The outcome is that no one can confidently predict the outcome.
“We haven't had tariffs on medicines for a very long time,” said Brad W. Sesser, an economist with the Council of Foreign Relations, who has studied tax rules encouraging overseas production.
Even if Trump suspends so-called “mutual” tariffs in favor of a full 10% rate during the hiatus, he has left some industry-specific tariffs, revealing that computer chips and drugs will come next. The US has recently launched a survey of both sectors. This is the first step to hitting them with tariffs.
Many industry experts expect new tariffs to be 25% along steel, aluminum and cars.
Possible tariffs are particularly worrying for the European pharmaceutical industry country. This is especially true in Ireland, where drugs make up 80% of all exports to the US.
Many pharmaceutical companies have moved to Ireland originally because of the very low corporate tax rates. However, they also work on developing the pharmaceutical industry, providing access to a highly skilled workforce.
In recent years, the sector has grown rapidly. More than 90 pharmaceutical companies currently have their bases there, with many of America's largest drug manufacturers operating domestically, according to Ireland's foreign direct investment agency. Last year, the Irish pharmaceutical industry exported 58 billion euros, or about $66 billion, of drugs and chemicals, to the United States.
“Irish people are smart, yes, they are smart people,” Trump said in March that Ireland Prime Minister Micheal Martin had been visiting the White House. “You took classes at our pharmaceutical companies and other companies,” he said. “On this beautiful island of 5 million people, the entire US pharmaceutical industry is keeping track of it.”
Currently, tariffs can reduce the advantages of manufacturing there. This is Trump's goal.
“In the US, we don't make our own drugs anymore,” Trump said last week from his oval office. “The pharmaceutical companies are in Ireland,” he added.
Companies are already branching out. Companies are rushing to export medicines from Ireland to the US market before the gauntlet falls, statistics suggest.
Ireland is the only one not affected. Germany, Belgium, Denmark and Slovenia are also major exporters.
“This is a big problem for Europe,” said Penny Nurse, who led the competitiveness program at the German Marshall Fund think tank and has long worked in European public policy and corporate affairs.
European leaders reach out to both American officials and the industry. In addition to his recent visit to the Irish Prime Minister's elliptical office, the Irish Foreign Minister traveled to Washington to meet with the Secretary of Commerce.
Ursula von der Leyen, president of the European Commission, the executive branch of the European Union, met in Brussels with the European Pharmaceutical Industry Association, the lobby group representing Europe's largest drug makers.
The industry is taking advantage of moments of pushing wishlist items, just like fewer red tapes.
European drug lobby groups told von der Reyen that companies could move production or investment to the US to be exposed to Trump's tariffs, especially if faster approvals and access to capital are made easier.
At least 18 members of the group, including Bayer, Pfizer and Merck, plan to invest nearly 165 billion euros in the European Union over the next five years. Half of that could also move to the United States, the federal said. That's not all in that prediction.
“Pharmas need more attractive conditions to produce in Europe,” said Dorothy Blackman, director of Pharma Germany, Germany's largest association of pharmaceutical companies.
Such warnings seem to have teeth. Some companies are beginning to plan to spend more in the US. Last week, the company's Roche announced its $50 billion US investment plan. This is the latest in such an announcement.
In a commentary released last week, Novartis and Sanofi chief executives suggested that fewer regulations are not insufficient to stop bleeding. They argued that “European price control and austerity measures will reduce market appeal,” and that the bloc should pave the way for higher prices.
Industry executives also warn that sector tariffs could disrupt supply lines, undermine patient access and weaken R&D.
“There's a reason” that drug tariffs are set at zero, said Joaquin Duato, chief executive of drug maker Johnson & Johnson, in a recent revenue call. “That's because tariffs cause disruption in the supply chain and lead to shortages.”
Von der Reyen highlighted similar concerns and warned that tariffs on the drug sector risk the risk of “an impact on globally connected supply chains and the availability of drugs for patients in Europe and the US.”
Pharmaceutical tariffs also pose another risk to the European Union.
Blocks are frequently made in Asia, as they are trying to build their capacity to manufacture generic drugs that are medically essential but far less profitable than name branded products.
But if US tariffs mean that Chinese and Indian generic drug manufacturers are suddenly looking for non-US customers, it could send a flood of cheaper drugs towards Europe.
This could make it even more difficult for the European Union to establish a domestic manufacturing base for generics, even if it tempts the US to produce drugs of well-known name brands.
“We believe this is likely to lead to an increase in investment in the US,” said Diederik Stadig, a sector economist at ING. “The European Commission needs to get on the ball.”
