Tariff Changes Impacting Pharmaceutical Stocks in the U.S. Market
On March 1, 2023, President Trump made headlines with his announcement regarding tariffs on imported pharmaceuticals, stirring mixed reactions among investors and pharmaceutical companies. The President stated that he would lower tariffs on most countries to 10% for a temporary period of 90 days. However, tariffs on China would rise significantly to 125%. Despite these adjustments, fears lingered regarding the implications for the pharmaceutical sector, particularly due to Trump’s earlier indications of planned tariffs specifically targeting this industry.
Following the announcement, shares from various major pharmaceutical companies experienced fluctuations. Many U.S.-based firms, including Eli Lilly, AbbVie, Bristol Myers Squibb, Regeneron, Merck, Pfizer, Johnson & Johnson, and Amgen, initially suffered a decline ranging from 2% to 4% before rallying after the tariff announcement. Conversely, some foreign pharmaceutical companies, such as AstraZeneca, Novo Nordisk, and Novartis, showed positive movement, while others, like GSK, continued to see drops in stock value.
Amid the market’s volatility, President Trump emphasized his administration’s intention to unveil a "major" tariff on pharmaceuticals in the near future, despite the temporary relief granted to drug manufacturers. He argued that these tariffs were designed to encourage pharmaceutical companies to relocate their manufacturing operations back to the U.S. This would address the significant decline in domestic production observed over the past few decades, as manufacturing increasingly shifted to countries with lower labor costs, such as China and India.
In fact, U.S. pharmaceutical imports reached nearly $213 billion in 2024, demonstrating a surge compared to a decade earlier. This data aligns with reports from the United Nations COMTRADE database that highlight a pressing concern regarding the pharmaceutical supply chain and facilitation of medications.
Despite these strategic intentions, Wall Street analysts expressed skepticism. The intricate nature of global supply chains in the pharmaceutical sector poses significant challenges to reshoring production. BMO Capital Markets analyst Evan Seigerman pointed out that merely relocating manufacturing facilities is not as straightforward as it might seem. He noted that most large pharmaceutical companies already have solid operations in the U.S. and may be inclined to delay making any permanent decisions regarding their manufacturing strategies until after Trump’s presidency.
Concerns among some lawmakers have been voiced as well, particularly from a group of House Democrats urging the administration to preserve U.S. medical supply chains from potential disruptions caused by the ongoing trade war. They highlighted the risks posed to U.S. patients, suggesting that supply disruptions could lead to impossible rationing decisions for providers, delay critical treatments, and ultimately result in dangerous health outcomes.
Pharmaceutical companies that have recently invested substantial capital in domestic manufacturing are also pushing back against the impending tariffs. Eli Lilly’s CEO, Dave Ricks, indicated that these tariffs could impose burdens on their commitments regarding research and development (R&D). He expressed that navigating the cost of tariffs could lead to difficult choices within the company, which may include staff reductions or cuts in R&D initiatives.
Johnson & Johnson announced a significant investment of $55 billion in U.S. manufacturing, R&D, and technology over the next four years, but has yet to disclose its stance on the potential tariffs. This investment highlights the delicate balance that pharmaceutical companies must maintain between complying with tariffs and managing their operational and developmental commitments.
As the situation unfolds, the complexities of U.S. pharmaceutical tariffs and the corresponding market reactions continue to be a point of focus. Investors and companies alike are watching closely to see how these changes in tariffs will shape the future landscape of pharmaceutical manufacturing and accessibility in the United States.
