Trump tariffs on the pharmaceutical sector. A new twist- the US department of commerce initiates a Section 232 investigation

As we observe the effects of the Trump Tariff saga, US President Donald J. Trump’s indications of “major” tariffs triggered a drop in global pharma stocks, especially leading Indian drug makers. While the intent behind these actions is credible – reduce U.S. dependence on foreign drugs, bring drug production back to the US and align with the MAGA policy of President Trump, critics argue that in the absence of an increase in domestic (US) production output, such hard hitting measures could eventually raise prices and disrupt access to affordable to drugs to US patients. Reason enough to hold off on raising tariffs applicable to the pharmaceutical sector. There is also a school of thought that argues that such posturing by the US administration will play a role in negotiation of beneficial tariffs with countries that currently have higher tariffs on US goods. A multifaceted strategy play that has immense disruption potential regardless of the tariff numbers a play. 

Following this, the U.S. Department of Commerce has recently initiated a Section 232 investigation to determine the effects on the national security of imports of pharmaceuticals and pharmaceutical ingredients, including finished drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients, and key starting materials, and derivative products of those items. 

The investigation aims to assess whether reliance on foreign production, particularly from countries like India and China, poses a threat to U.S. national security by evaluating domestic production capacity, import concentration, and the feasibility of increasing U.S. manufacturing. The investigation covers both the pharmaceutical supply chain and critical inputs, focusing on generics that form 90 per cent of US prescriptions and APIs used to make such generics. India supplies ~45 per cent of U.S. generics and China supplies ~70 per cent of APIS’s used by India generic manufacturers (TIFAC report on ‘Active Pharmaceutical Ingredients- Status, Issues, Technology Readiness and Challenges’). 

What is a Section 232 investigation?

A Section 232 investigation is a probe conducted under the authority of Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862), to assesses whether or not imports of a particular article entering the U.S. threaten to impair the national security of the US by evaluating the impact of such imports on domestic production, economic stability, and defense requirements of the US. Such an investigation can be triggered in a number of ways such as a request by a domestic interested party/ trade group, government agency/ agency head or initiated by the Secretary of Commerce, which is the driving force behind the current investigation. Such an investigation is conducted within a period of 270 days by the Department of Commerce, through its Bureau of Industry and Security (BIS) in consultation with the US Secretary of Defense and other agencies. Factors that are evaluated include the capacity of the domestic US industry to meet national defense needs, the economic welfare of the domestic industry and impact of foreign competition on the same and most importantly whether or not such imports cause job losses or harm critical industries. Findings are presented to the US President with recommendations such as tariffs/ quotas or restraint from action that are given. The President then has 90 days to review and take appropriate action.  

Key issues under investigation:

1. Current and projected demand for pharmaceuticals and pharmaceutical ingredients in the United States; 
2. Extent to which domestic production of pharmaceuticals and pharmaceutical ingredients can meet domestic demand; 
3. Role of foreign supply chains, particularly of major exporters, in meeting United States demand for pharmaceuticals and pharmaceutical ingredients; 
4. Concentration of United States imports of pharmaceuticals and pharmaceutical ingredients from a small number of suppliers and the associated risks; 
5. Impact of foreign government subsidies and predatory trade practices on United States pharmaceuticals industry competitiveness; 
6. Economic impact of artificially suppressed prices of pharmaceuticals and pharmaceutical ingredients due to foreign unfair trade practices and state- sponsored overproduction; 
7. Potential for export restrictions by foreign nations, including the ability of foreign nations to weaponise their control over pharmaceuticals supplies; 
8. Feasibility of increasing domestic capacity for pharmaceuticals and pharmaceutical ingredients to reduce import reliance; 
9. Impact of current trade policies on domestic production of pharmaceuticals and pharmaceutical ingredients, and whether additional measures, including tariffs or quotas, are necessary to protect national security; and (x) any other relevant factors.

If a national security threat is identified, President Trump could impose tariffs (potentially 25 per cent or higher) to incentivise domestic manufacturing. Drugmakers are lobbying for phased-in tariffs to mitigate shortages and price hikes, there could be upto $53 billion in added costs and challenges in relocating production due to high U.S. costs and long setup times of 5-10 years depending on the type of facility being established.

While no Indian companies are explicitly named in the Section 232 probe, those with significant U.S. exposure could be affected and may also face requests for information. While Indian generic manufacturers do not face tariffs as of April 17, 2025, the above investigation could, if the administration is convinced, lead to levies impacting almost $8-10 billion in US exports- reason enough to make manufacturers explore diversification into markets like the EU and Africa to offset risks. 

Drugmakers believe that tariffs could exacerbate drug shortages, raise prices, and strain thin-margin generics, with limited short-term ability to shift manufacturing. While companies may absorb initial costs to avoid price hikes, long-term impacts could cut R&D budgets or force consumer price increases. On the other hand, public sentiment is a mixed bag of support and appreciation and criticism and fear of potential price increases. 

The outcome of this investigation could eventually decide whether Indian and other foreign pharma companies face tariffs, with significant implications for global supply chains and U.S. healthcare costs. In the meanwhile, the status quo stands.