The Trump administration has continuously mentioned reducing drug prices to drive patient costs down, but the proposed tariff is expected to do just the opposite. Credit: Gage Skidmore

On 3 April, the US Trade Representative’s (USTR) office announced its intention to add a 25% tariff on around $50bn worth of Chinese imports across 1,300 categories of products. This would target many of the key products used by drug makers, considering that a colossal proportion of their active pharmaceutical ingredients (APIs) come directly from China.

China retaliated by slapping a 25% duty on 106 US goods; however, as of now, no extra tariffs on US drugs have been implemented. The Chinese government announced the same day that it would offer a preferential tax rate of 15% to generic drug makers to help reduce medical bills for patients and cultivate innovation. Based on China’s retaliation, President Trump escalated the situation on 5 April by instructing the USTR to consider adding an additional $100bn worth of tariffs on Chinese imports. How will the chain reaction of new policies impact the biopharmaceutical industry in the US and China across the value chain, and what could the outcome be for the industry and patients?

The Trump administration has continuously mentioned reducing drug prices to drive patient costs down, but the proposed tariff is expected to do just the opposite. The US government will place a 25% tariff on raw drug ingredients, insulin, epinephrine and vaccines (outlined in detail in the list released from the USTR). The FDA has estimated that approximately 80% of the APIs required to formulate drugs come from India and China. This could be particularly concerning for US generic drug makers and potentially even companies that produce biosimilars, considering that the proposed tariff could cause increased manufacturing costs and result in higher prescription drug costs for patients across the US.

As such, generic drug developers such as Novartis’ Sandoz, Pfizer, Teva and Mylan may feel the effects of these tariffs. Longer-term, if the trade war escalates, it may lead to reduced trade with China. US biopharmaceutical companies may opt for procuring APIs from other countries such as India. US generics companies notably, and potentially biosimilar manufacturers, have continuously focused on streamlining operations and may have their profits drastically cut in a scenario where prices are capped. This may result in less investment going into R&D, which could potentially harm US innovation in the longer term.

On the other side of the situation, China has decided as of now not to add such tariffs for US drugs being imported into China, which is believed to be a fairly astute move as it would help to safeguard public health and prevent costs rising for patients. In addition to this, China has decided to set the corporation tax rate at 15%, which would benefit generics companies and assist in reducing costs for patients. The State Council announced that it would create new incentives to promote the production of generic drugs and stimulate more innovation within the industry.

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Overall, it appears that China is in a much better negotiating position, as the Chinese biopharma industry does not seem to be threatened by this move. On the other side, US drug developers may be in a tentative situation where American generic and biosimilar companies could be affected longer term by the proposed trade tariffs. As of now, no date has been announced for the tariffs to be implemented; however, the uncertainty of these new proposed tariffs may diffuse through the entire value chain of the biopharma industry and negatively affect US patients, payers, and generics and biosimilar drug makers in the years to come.

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