Everyone in the generic drug industry was shocked by the announcement that President Trump will impose 100% tariffs in 2028 and then increase them to 200% the year after for companies that do not onshore generic production. What does this mean? Unfortunately, we won’t know for a while as there are no details regarding the announcement.

Generic drugs account for approximately 90% of all prescriptions dispensed in the US. A large percentage of these generic products come from overseas. In addition, a large percentage of the active pharmaceutical ingredients come from China and India. Expecting companies based in the EU, the UK, India, and China to onshore a significant portion of generic drug production within a two-year period is, in my opinion, unrealistic. In addition, placing tariffs on foreign-made drug products will have an immediate impact on the prices that patients and US government agencies will have to pay for drugs. Wasn’t one of the administration’s goals to reduce drug prices?

Using tariffs to force foreign firms to produce generics in the US is counterproductive for several reasons. First, labor costs are significantly higher in the US than overseas. This would cause the price of most of the generic products to increase to cover those higher labor costs. Coupled with the current razor-thin margins on most commodity generic products, and firms would likely conclude that there is little incentive to bring manufacturing back to the US and could instead decide to discontinue selling their products in the US, potentially leading to drug shortages. But even if they do onshore production of their products, they will need to increase their prices to maintain profitability, which would be passed on to patients. Second, you cannot simply flip a switch and expect commercial-scale manufacturing to be operational within two years. Companies must first purchase land, design, build, and commission facilities, and submit regulatory filings to the FDA. Third, new facilities would need to be inspected by the FDA, placing additional strain on agency staff who already appear unable to keep pace with existing inspectional obligations. It does not seem feasible with the existing complex worldwide supply chain to expect that merely moving a manufacturing site to the US will cure all ills. Can a revitalized US manufacturing presence in the US prevent drug shortages? There have been several examples of where a natural disaster or cGMP failures have led to drug shortages for products that are currently manufactured in the US. There are other components of drug products that must be considered and procured including APIs, inactive ingredients, container closures, just to name a few, all of which are needed to support finished drug product manufacturing in the US. Relying on US manufacturing or supply alone will not solve the problem. The US must continue to rely, at least in part, on a resilient global supply chain to function efficiently.

Certainly, none of these issues are new, but they can’t be looked at in silos, as the old physics analogy states, “For every action, there is an equal and opposite reaction”. The reaction from industry and consumer groups to the generic drug tariff announcement has been very strong. Perhaps the tariff announcement by the administration is mostly bluster. If you look at recent history, it seems the threat always precedes further negotiations, and the outcome is not as bleak as the initial utterance. Let’s hope this is the case because, as it stands now, the only certainty about this announcement, if it comes to pass, is that generic drugs will become more expensive and will likely lead to a significant rise in US drug shortages.