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Sam Lowe is a partner at Flint Global, where he advises clients on UK and EU trade policy. He is also a senior visiting fellow at Chatham House and runs Most Favoured Nation, a newsletter about trade.
For the past three decades, pharmaceuticals have largely been kept out of tariff wars. Sanctions regimes tend to carve them out, even if they still end up getting impacted by restrictions on things like payments and shipping.
The general thinking behind this approach is (…was?) that artificially increasing the cost of products that prevent and treat sickness is bad.
But times have changed, and last Friday the US announced a new 100 per cent tariff on imported pharmaceutical products.
Except… it hasn’t really.
While 100 per cent is the headline rate, in practice there are numerous product, company, and country-specific caveats and exemptions.
For example, generic medicines and US-origin products and drugs will be exempt from tariffs, as will some other products, such as fertility treatments or nuclear medicines, that meet specific health needs or come from jurisdictions judged to have relevant trade and security frameworks
At the company level, firms that have US-approved onshoring plans will face a 20 per cent tariff until 2 April 2030, when it jumps to 100 per cent.
Companies that have both an approved onshoring plan and have entered into agreements to price-match drugs sold in the US with comparable OECD countries — so-called Most-Favoured-Nation pricing agreements (note: not to be confused with the ✨ Most Favoured Nation Substack ✨ newsletter, written by, uh, me) — will face a zero per cent tariff until 20 January 2029. A list of the relevant companies can be found in Annex II.
At the country level, the following duties will apply:
- 15 per cent tariff. Applied to products originating in Japan, the EU, South Korea and Switzerland/Liechtenstein.
- 10 per cent tariff. Applied to products originating in the UK, reduced to zero per cent so long as the UK implements and complies with the US-UK pharmaceutical agreement (more on that shortly)
All of which is to say that if anyone asks me what the US tariff is on any given pharmaceutical import, the only honest answer I can give is: “Unless you are prepared to share lots of probably quite confidential information, I have absolutely no idea.”
To give an illustrative example: let’s say I am importing a certain medicine from the EU.
15 per cent, right? Well, maybe.
Well, 15 per cent does indeed apply to medicines originating from the EU. But as I’ve written about for FT Alphaville previously, the question of where US customs deems a product to be actually from is not a simple one.
For medicines, the focus is usually on the origin of the active pharmaceutical ingredient (API). So, just mashing it all together into a pill (the technical term) and boxing it up in Europe doesn’t quite cut it. For argument’s sake, let’s assume the API originates in China. In that case, maybe it’s a 100 per cent tariff? Maybe, but what if you’re an importer with an approved onshoring plan? Then 20 per cent. Probably 20 per cent.
Oh but wait, is it an orphan medicine (actually a technical term this time, describing medicines aimed at rare conditions)? Well, then it’s zero per cent. I think.
A decent rule of thumb is that the tariff rate for any given medicine is a) hard to determine, and b) probably less than 100 per cent, most of the time.
But the 100 per cent tariff was never really the point. It’s about the threat of the 100 per cent, or at least a higher, tariff that matters more.
Take the UK-US agreement. The zero per cent deal is both time-limited for three years and conditioned on that “all major United Kingdom pharmaceutical companies enter into, and adhere to the terms of, the MFN and Tariff Agreements negotiated with the U.S. Department of Health and Human Services and U.S. Department of Commerce, respectively”.
Via its conditional exemptions, what the US has created is a mechanism for continuous pressure on companies to make more in the US, sell their medicines for less, and get paid more by foreign health providers. And if that doesn’t happen? Well, tariffs. Obviously.
So this isn’t really a tariff regime. It’s a perpetual leverage machine with tariffs as the enforcement mechanism. And I think it’s going to stick around, long after Trump. Or to put it another way: once you’ve built that machine — and felt its benefits — it’s going to be hard to give it up.
