U.S. Department of Commerce Investigates Possible Tariffs on Pharmaceuticals: Forecasting the Impact and an Opportunity to Comment

• The Secretary of Commerce is investigating the effects of imports of pharmaceuticals and pharmaceutical ingredients (and their derivative products) on national security to support potential tariffs or importation quotas.
• The investigation will explore current domestic capacity to meet domestic demand. Currently, most prescription drugs filled in the U.S. and their ingredients are manufactured in foreign facilities.
• Stakeholders, including current and prospective pharmaceutical manufacturers as well as members of affected industries such as research universities and hospital systems, have an opportunity to comment on the Secretary’s investigation until May 7, 2025.

Interested parties, including U.S.-based and ex-U.S. pharmaceutical manufacturers, distributors, as well as academic medical centers and other sites for clinical trials using investigational pharmaceuticals, have the opportunity to comment before May 7, 2025.

As part of the investigation, the Department of Commerce is particularly interested in receiving comments, data, analyses and/or other information from interested parties directed at the criteria listed in section 705.4 of the NSIBR regulations, as they may potentially affect national security, including the following:

1. the current and projected demand for pharmaceuticals and pharmaceutical ingredients in the U.S.;
2. the extent to which domestic production of pharmaceuticals and pharmaceutical ingredients can meet domestic demand;
3. the role of foreign supply chains, particularly of major exporters, in meeting U.S. demand for pharmaceuticals and pharmaceutical ingredients;
4. the concentration of U.S. imports of pharmaceuticals and pharmaceutical ingredients from a small number of suppliers and the associated risks;
5. the impact of foreign government subsidies and predatory trade practices on U.S. pharmaceutical industry competitiveness;
6. the economic impact of artificially suppressed prices of pharmaceuticals and pharmaceutical ingredients due to foreign unfair trade practices and state-sponsored overproduction;
7. the potential for export restrictions by foreign nations, including the ability of foreign nations to weaponize their control over pharmaceuticals supplies;
8. the feasibility of increasing domestic capacity for pharmaceuticals and pharmaceutical ingredients to reduce import reliance;
9. the 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
10. any other relevant factors.

Restrictions on imports are being touted to promote domestic production of pharmaceutical products, which could lead to increased investment in domestic manufacturing facilities. While the United States already produces a significant number of pharmaceutical products domestically, most drugs that consumers receive at pharmacies are not produced domestically. The U.S. Food and Drug Administration ("FDA") estimates that 90% of prescriptions filled in the U.S. are filled with generic drugs which, along with their API, are mostly manufactured in foreign countries. Meeting U.S. demand with domestic manufacturing alone would require U.S. firms to match the scale of facilities abroad by developing numerous, high output facilities. Increased costs due to tariffs on importing drugs and their ingredients or developing U.S. facilities are likely to be passed on throughout the supply chain. Furthermore, the President’s recent Executive Order “LOWERING DRUG PRICES BY ONCE AGAIN PUTTING AMERICANS FIRST” contains a provision encouraging FDA to reduce barriers to drug importation programs – an initiative seemingly at odds with the goals of the Secretary of Commerce’s investigation.

Scaling up domestic production to meet demand could be challenging, and would require significant investment in infrastructure, technology, and skilled labor. Large-scale drug manufacturing will require construction and scaling up of facilities compliant with FDA’s current Good Manufacturing Practices (cGMP). Constructing a cGMP-compliant facility along with hiring the proper personnel (another cGMP requirement) could require years and millions of dollars of investment. Additionally, the machinery and raw materials needed to construct these facilities will likely be subject to other tariffs which may pose further obstacles to large-scale domestic manufacturing scale-up due to the substantial up-front costs. Other cGMP requirements including facility registration, regulatory audits, and equipment maintenance must be considered along with obligations under FDA supply chain security laws and regulations. These compliance costs present further barriers to onshoring large-scale pharmaceutical manufacturing in the time frame envisioned by these policies.

In addition to potentially increasing the costs for drugs, policies arising from such an investigation could similarly increase research and development costs for novel pharmaceutical products. For example, experimental drugs tested in U.S.-based clinical trials may rely on foreign manufacturing for some or all of the experimental drug’s administration components. A domestic clinical trial may rely on foreign suppliers of syringes, IV bags, or other materials in addition to foreign suppliers of the experimental drug or some of its ingredients. Additionally, a substantial number of clinical trials for novel therapeutics developed by U.S.-based companies are conducted overseas. If the U.S. imposes tariffs on experimental medicines and related materials, foreign clinical trial sites may face reciprocal tariffs when importing supplies. While tariffs on experimental medicines and related materials may lead U.S.-based manufacturers to seek more U.S. trial sites, foreign drug developers may, in turn, shy away from U.S. clinical trial sites. A drop in cross-border trials may particularly affect rare disease drug development since trials involving rare diseases already face substantial recruitment and investment challenges.

Beyond drug development and manufacturing, the Federal Register notice is unclear regarding the extent to which this investigation may apply to medical devices. Numerous drug products such as autoinjectors and inhalers, are marketed in the United States as combination products with a device component. The extent to which these products, along with other devices necessary to administer drugs such as syringes, will be subject to the investigation and potential tariffs is unclear. Medical device manufacturers, like drug manufacturers, source ingredients from multiple countries even if the ultimate final product is manufactured in the United States. Also, like drug development, medical device research and development may incorporate multiple, cross-border sites and facilities that may be affected by the outcome of the Secretary’s investigation.

The Secretary’s investigation may highlight certain national security risks associated with dependence on foreign suppliers for critical medications, which is likely to lead to more policies aimed at reducing reliance on imports and ensuring a stable supply of essential drugs. The government may consider strategic stockpiling of essential medications to mitigate the risks of supply chain disruptions. This could involve creating reserves of critical drugs and raw materials. Some of these medications are currently manufactured abroad, and we have yet to see if any exemptions will be made related to developing government stockpiles of certain drugs and raw materials.

As has been the case with other goods, other countries are likely to respond to U.S. import restrictions with their own trade measures. This could escalate existing trade tensions, triggering further retaliatory tariffs, and potentially retaliation against U.S. services and intellectual property. Such measures have the potential to further complicate the global supply value chains and may lead to increased barriers of access to medical treatments and interventions. As discussed above, clinical trials are likely to be affected by reciprocal tariffs and clinical trial conduct is a crucial element of many university and hospital system operations.

The investigation could prompt negotiations for new trade agreements or revisions to existing ones as well as disputes. Agreements could address issues related to pharmaceutical trade, intellectual property rights, and regulatory standards. Furthermore, the Secretary may consider exemptions or the broader effects of this policy on related industries when developing trade agreements.

On an individual stakeholder level, companies will want to consider how additional tariffs could impact their supply chains, leading to review existing or planned international commercial contracts to appropriately allocate costs, windfalls, and risk. Imposition of tariffs could well lead to commercial disputes, which in turn could also impact global trade relations.

A Section 232 investigation into pharmaceuticals, pharmaceutical ingredients, and their derivate products could have far-reaching implications for the industry—affecting supply chains, costs, domestic production, national security, regulatory compliance, and global trade relations. The specific outcomes would depend on the findings of the investigation and the actions taken by the government. Stakeholders in the pharmaceutical industry should closely monitor developments and prepare for potential changes in the regulatory and trade environment. Interested parties should also consider submitting comments to ensure industry viewpoints are being considered by the Department of Commerce in its investigation and before additional trade measures are imposed.

Our FDA and International Trade & National Security practices are closely monitoring the situation and can help interested companies in a variety of ways, including:

• Preparing and submitting comments to the docket;
• Participating in public hearings if there are any;
• Outreach to policymakers and members of Congress to discuss impact on the industry and relevant stakeholders; and
• Managing supply chain risk, including reviewing and proposing terms in commercial contracts to appropriately manage costs and windfalls.

Comments must be received by May 7, 2025.