Analysis

The pharma tariffs puzzle: what's really at stake for the US

Companies prepare: increased stocks and 200 billion investment to strengthen domestic production capacity

by Servaas Michielssens*.

29 July 2025

2' min read

Key points

Impact on the sector
Conclusions

2' min read

The European Union and the United States reached an agreement on tariffs on Sunday, 27 July 2025. However, some confusion remains over the level of those related to the pharmaceutical sector. An ongoing Section 232 investigation, which examines the national security implications of a number of sensitive sectors, including the pharmaceutical supply chain, will be concluded in the coming weeks. This could have an impact on the level of tariffs applied to pharma companies.

So where does the Trump administration want to go from here? In our view, there are three main objectives.

First, Trump wants to bring pharmaceutical production back to the country, create domestic jobs, and reduce US dependence on foreign supply chains, as part of a broader push towards economic and health security.

Secondly, there is the tax aspect. Many pharmaceutical companies manufacture drugs in countries such as Ireland, where favourable taxation systems reduce their overall tax burden. Returning production to the US would allow the country to collect more corporate tax revenue.

Finally, tariffs could be used as leverage to address the persistent problem of drug price disparities. US consumers often pay much more than patients in other developed countries, and the US administration could use tariffs to pressure companies to reduce this gap. Although pricing and production are separate issues, they remain politically interconnected.

Impact on the sector

In the short term, the impact on pharmaceutical companies is limited. Many have preemptively increased inventories in the US to protect themselves against short-term disruptions. In the medium to long term, the industry has already responded by announcing more than USD 200 billion in investments to expand US domestic production capacity.

The Trump administration has publicly praised several companies for these efforts, signalling a willingness to allow time for the implementation of these measures before applying the new tariffs. The reality is that the construction of productive infrastructure cannot happen overnight.

Looking at business, tariffs on pharmaceuticals may not be as destabilising as those applied to other sectors. Due to high gross margins, pharmaceutical companies are able to absorb modest cost increases. However, the complexity lies in transfer pricing. Many companies assign a high domestic value to drugs produced abroad, partly because of the intellectual property associated with them. This practice shifts profits, and thus taxes, to more favourably taxed jurisdictions. If tariffs were applied, this accounting approach would likely come under close scrutiny.

Furthermore, it is interesting to note that US-based pharmaceutical companies may be more exposed than their non-US counterparts. Many US companies have relocated both production and intellectual property abroad to benefit from tax arbitrage. In contrast, foreign companies often maintain significant production capacity in the US and have less incentive to resort to aggressive transfer pricing.

Conclusioni

Tariffs on the pharmaceutical sector remain an undefined target, given the ongoing Section 232 investigation. To date, the impact of tariffs can be absorbed, but we await further details on their exact implementation. Overall, the direction is clear: greater US control over the pharmaceutical supply chain, increased tax revenues, and the possibility of using additional Section 232 tariffs as leverage in drug price discussions.

*Head of Healthcare, Thematic Global Equity at Candriam

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