Will US–EU Pharma Tariffs Restore Domestic Production?
Will US–EU Pharma Tariffs Restore Domestic Production?
The agreement on pharmaceutical trade that the United States and the European Union reached last summer represents a significant turning point for the global pharmaceutical sector in terms of both pricing and production strategies. The agreement will push up drug costs in the short term, but carries deep-reaching effects that could fundamentally alter the geographic distribution and production structures of the sector over the long term.
The agreement's key elements: 15% pharma tariff + Section 232 exemption
The transatlantic agreement imposes a 15% customs duty on many pharmaceutical products exported from the EU to the US.
In return, EU pharmaceuticals are exempted from additional Section 232 tariffs.
These two elements together create a critical balance:
The tariff represents approximately $19 billion in additional annual costs for EU producers.
However, the Section 232 exemption prevents the imposition of additional taxes reaching as high as 100% that the Trump administration had threatened.
While the US continues to threaten high tariffs specifically targeting brand-name and patented pharmaceuticals, it is sending manufacturers the message that "if you build a facility in the US, you can be exempt from additional tariffs."
The impact initially falls on insurance companies, not patients
Tony Gulotta from Ryan Tax says that due to the high margins in the pharmaceutical market, price increases will be delayed in reaching end users:
Because insurance companies purchase most of the drugs in the US, the initial cost burden will fall on them.
However, insurance companies can quickly pass this cost to consumers by raising their premiums.
It should be noted that 60% of US pharmaceutical imports come from Europe—indicating that the price impact will be substantial.
Legal uncertainty: IEEPA lawsuit and Section 232 risk
The Trump administration bases pharmaceutical tariffs on two different sources of authority:
IEEPA (International Emergency Economic Powers Act)
Section 232 (national security grounds)
The fact that tariffs imposed under IEEPA are under review by the Supreme Court is increasing uncertainty among companies.
The court is expected to issue a decision in the December 2025–January 2026 period.
If IEEPA is struck down and Trump turns to Section 232, a significant portion of EU pharmaceutical products could face new risks.
For this reason, European manufacturers are pursuing a wait-and-see strategy.
Will domestic production return? The answer: "It's not that simple."
The Trump administration's goal is clear: to bring pharmaceutical production back to the US.
However, according to industry experts, achieving this goal involves high complexity and costs.
According to Gulotta's assessment, the main obstacles to reshoring are:
State-by-state varying tax regimes in the US (sales, property, and income taxes)
The necessity of importing expensive specialized equipment nonetheless
The resulting cascading tax burden
Clean rooms, sterilization, and environmental standards required in pharmaceutical manufacturing
The absence in the US of economies of scale that overseas production has built over many years
Building a pharmaceutical factory is not "as simple a plan as shifting garment production from China to Indonesia." It is a far more capital-intensive, far more heavily regulated, and much longer-term undertaking.
Short-term company strategies
According to Gulotta, European manufacturers have turned to the following steps during this period of uncertainty:
Building inventory in the US to reduce price impact and supply disruptions,
Optimizing their product portfolios,
Developing supply chain plans tailored to the US market.
What will happen in the medium to long term?
The expectation is that instead of rapid reshoring, the sector will enter a process of gradual geographic restructuring.
Likely outcomes:
The most critical pharmaceutical categories could shift to partial US production,
European companies will revise their five-year investment plans based on US's final tariff policy,
The global pharmaceutical supply chain will become increasingly regionalized,
New facility investments in the US will be limited but strategic.
Key Takeaways:
The US–EU agreement imposes a 15% tariff on pharmaceuticals; the Section 232 exemption provides additional protection.
In the short term, prices and insurance premiums will come under pressure.
European pharmaceutical producers could face $19 billion in additional annual costs.
The IEEPA decision and Section 232 risk are leaving the sector's investment decisions uncertain.
Reshoring is possible but represents a highly costly, complex, and long-term undertaking.
The sector's future: regionalization and gradual restructuring.
----------
--------------------
Author: SedatOnat.com
--------------------
!!! ANNOUNCEMENT !!!
How to Buy ERP? Our book has been published on Google Play Books.
#What is ERP?
https://www.sedatonat.com/erpnasilalinir You can download and read it for free through the link above.
We would be delighted to hear your feedback.
Wishing you happy reading from the start.