Trump’s Tariff Threat Fails to Reduce U.S. Dependence on Foreign Pharmaceutical Sources or Lower Consumer Costs, Analysts Say

Pharmaceutical companies have announced significant investments in U.S. manufacturing and research over the past few years, with AstraZeneca committing $50 billion, Johnson & Johnson pledging $55 billion, and Eli Lilly promising $27 billion to build new facilities. The total planned investments exceed $250 billion, according to industry analysts.

The increased production is a response to President Trump’s threat of tariffs on pharmaceutical imports, which he believes will strengthen national security and reduce drug prices. However, experts suggest that these investments will not significantly decrease the U.S.’s dependence on foreign sources for key pharmaceutical ingredients and drugs or lead to lower costs for American consumers.

The pharmaceutical industry is a complex global network with manufacturing locations spread across various countries. The economics of brand-name and generic drug manufacturing differ widely, and the final cost paid by U.S. consumers is determined by multiple factors involving several players.

Many medications are already produced in the U.S. by both domestic and foreign companies, with some manufacturers increasing production domestically due to tariff threats. However, some of these investments were already planned before Trump took office, and not all commitments may be fulfilled, analysts say.

Johnson & Johnson’s $55 billion investment announcement in March included a North Carolina facility that was originally unveiled in October, demonstrating the reiteration of existing plans to appease the President. Pharmaceutical companies are seen as playing ball with the administration, aiming to demonstrate their commitment to domestic manufacturing and compliance with Trump’s policies.

In contrast, generic drug manufacturers are not making similar investment commitments due to their thinner profit margins. While certain generic medicines are produced in the U.S., the majority of drugs in pill or capsule form are manufactured abroad, primarily in India.

Recently, two generic drug manufacturers, Hikma Pharmaceuticals USA and Amphastar Pharmaceuticals, have announced domestic investments. They plan to expand their manufacturing capabilities in several U.S. locations and increase production of sterile injectable drugs. Other companies are more hesitant due to concerns about low reimbursements that may not provide a return on investment.

National security concerns focus on generic drugs, which account for over 90% of U.S. prescriptions and are critical to medicine administered in hospitals and doctors’ offices. A significant share of the supply chain for certain generic medications comes from abroad and could be disrupted during geopolitical crises.

Blanket tariffs on these drugs may not increase domestic manufacturing, as significant incentives would be needed for companies to invest in U.S. production. The Trump administration is currently negotiating trade deals and has yet to release findings from its investigation into the national security implications of drug imports, which is expected to determine potential tariffs.

Increasing domestic manufacturing will help brand name drug companies avoid tariffs, but they may still face levies if they import pharmaceutical ingredients from other countries. The cost of production is typically higher in the U.S., and the final prices paid by consumers are largely determined by the complexities of the U.S. health system, involving manufacturers, insurers, and pharmacy benefit managers (PBMs).

Whether Americans will see a reduction in prescription costs depends on the success of President Trump’s other initiatives, including bringing U.S. prices more in line with those in Europe and reforming the PBM industry. While brand name manufacturers may have some flexibility to absorb increased expenses, experts believe they will pass at least some of the added burden onto consumers through higher out-of-pocket costs or increased insurance premiums.

Shifting more generic manufacturing to the U.S. would lead to higher production costs that these companies cannot afford to cover. Tariffs could potentially force these drugmakers to exit the U.S. market, exacerbating shortages. At a time when the administration aims to keep costs down, wholesale redistribution of generic capacity towards the U.S. is not expected soon, according to analysts.