US President Donald Trump has announced that he will impose 100% duties on branded drugs starting October 1, unless manufacturers are actively building plants in the country. The exceptions cover firms that are either "breaking ground" or being "under construction".
The announcement came as a shock, as Trump had previously hinted that tariffs on pharma imports would be phased, starting with “small” rates before increasing to 150 percent over a year, so as to give companies time to relocate to the US.
Trump’s move aimed at boosting domestic production will come as a huge shock to India, the leading pharma exporter to the US. The US is the world’s largest pharmaceutical market, importing products worth US$212.67 billion in 2024. India is the major supplier of generic medicines to the U.S. market, exporting $8.7 billion (Rs 76,113 crore) worth of pharma products to the US. This is 40-47% of all the generic drugs used in the United States.
Indian drugs are also instrumental in ensuring access to vital medicines to Americans at affordable prices. Case in point: Indian-made generic Rosuvastatin’s entry into the US market meant that the number of Americans who could afford the drug doubled between 2016 and 2022.
However, due to its low costs, the profit for Indian drug companies from the US is razor-thin. But, Indian firms derive up to 50% of total revenue from American buyers.
For Indian drug giants Sun Pharma, Dr Reddy’s, Lupin, and Aurobindo, Trump’s announcement is a huge setback as they have come to rely on US demand for affordable medicines.
The effect was palpable; the shares of drugmakers have dropped. India's equity benchmarks, which dropped under pressure due to the H-1B tariff, are likely to open little changed on Friday.
Drug makers could also explore the option of taking manufacturing to the US soil, like major global giants like AstraZeneca and Roche. Both announced recently that they planned to invest $50 billion in new or expanded facilities across multiple states. Merck and Biogen also have plans to invest in the US, while Pfizer stated in March that it could shift overseas production to existing U.S. sites if necessary.
Indian pharma companies, too, could do this, either by the acquisition of existing infrastructure or the construction of new units. But, this is still a complex process and according to estimates, will take at least 5-10 years. Then there are challenges other than investments, which include the US’s stringent regulatory measures and the need for a highly-skilled workforce.
For India, this could also be another opportunity. It can reduce dependence on any single market and grow exports to various regions.