US Tariffs: Threaten Indian Pharma Exports
Indian pharmaceutical firms are currently exempt from tariffs imposed by the United States (US), but this insulation may not last. Duties on Indian imports currently stand at 25 percent but may double to 50 percent with US President Donald Trump announcing an additional levy earlier this month, citing India’s import of Russian oil. As of now, the pharmaceutical sector falls outside the ambit of US tariffs. However, in a recent interview, Trump indicated that he plans to introduce pharma-specific tariffs that could reach 250 percent over the next 18 months. Estimates indicate that a 25 percent pharma tariff would add US$51 billion a year to US drug costs, potentially increasing drug prices by 13 percent.
Tariff Tensions and the Section 232 Review
The US-India bilateral trade relationship has been strained, with the Trump administration announcing plans to place additional tariffs on imports from India as a penalty for India’s purchase of Russian crude oil, placing the total tariffs at 50 percent. Pharmaceuticals have thus far been positioned out of the tariff ambit, while India places a duty between 5-10 percent on American pharma products. In April 2025, the US commenced a Section 232 review of its pharma imports under its Trade Expansion Act, 1962. The results of this investigation – expected by March 2026 – will determine whether the US President will impose duties on imports that are deemed a national security risk. Previous application of tariffs to steel and aluminium, under Section 232, adversely impacted US productivity and its trade relations with its partners. India will present its case at the World Trade Organization (WTO), arguing that the new tariffs on steel and aluminium are not compliant with WTO safeguard measures, whilst reserving its right to pursue retaliatory tariff countermeasures.
US Tariffs on Pharma: Current Status
In the case of pharmaceuticals, the US recently placed 15 percent tariffs on pharma imports from the EU and Japan, and 10 percent on those from the UK, marking a notable departure from the long-standing tradition of insulating pharma products from trade disputes due to their public health importance. The future of these tariffs is uncertain as they will be subject to the outcome of the Section 232 investigation. Trump indicated that any new tariffs will be introduced incrementally over the next 18 months to secure the US drug supply chains and bring production back to American shores.
This plan, however, assumes tariffs will make imported drugs more expensive, push consumers toward domestic options, and spur US pharmaceutical manufacturing and job growth. These assumptions fail to account for the nuances of the American healthcare system and overlook the economic and operational aspects of onshoring. Firstly, 90 percent of US health expenditure is attributed to chronic diseases, which are managed through prescription drugs comprising both branded drugs and generics. The US is the world’s largest pharmaceutical market, importing products worth US$212.67 billion in 2024. Ninety percent of prescriptions dispensed in the US are for generic drugs, but they account for only 20 percent of spending, indicating that a considerable amount of drug spending goes towards patent-protected medicines.
Reliance on Indian Generics
The US healthcare system is heavily reliant on India; India supplies 47 percent of its generics and is instrumental in ensuring access to vital medicines at affordable prices. Indian-made generic Rosuvastatin illustrates this — after its entry into the market, the number of Americans who were able to afford the drug doubled between 2016 and 2022. Tariff pressure on generics – above 10-15 percent – can cause Indian manufacturers to exit the US market due to ‘razor-thin profit margins’ or even compel cost-cutting measures that compromise drug quality. The result of the tariffs, therefore, poses a direct threat to US public health security by triggering drug shortages and raising drug costs for American patients.
Supply Chain Vulnerabilities
Further, pharma supply chains are complex, with vulnerabilities arising due to a heavy reliance on China for critical materials. This is primarily due to dependence on China for key starting materials (KSM) and active pharmaceutical ingredients (APIs) that are essential to drug manufacturing. 40 percent of global API needs are supplied by China. The COVID-19 pandemic highlighted India’s vulnerabilities and prompted Production-Linked-Incentive (PLI) schemes for the promotion of KSMs and APIs. Despite this, India imports 70 percent of its API needs from China. If tariffs are imposed on Indian pharma products, it will disincentivise Indian drug manufacturers from producing APIs. Instead, drug manufacturers, to minimise losses and to preserve cost-margins arising from tariffs, will likely increase their purchases of APIs from cheaper Chinese sources – at least in the interim – thereby undermining Indian and US efforts to de-risk pharmaceutical supply chains from China. This would place both Indian and US health security at risk by deepening API dependency on China.
Onshoring Challenges
The second nuance to US healthcare is that ramping up US pharmaceutical manufacturing is complex and, according to estimates, will take at least 5-10 years. Tariffs may incentivise manufacturers of branded drugs with a high profit margin to bring manufacturing to American shores, either through the acquisition of existing infrastructure or through the construction of new production units. However, aside from the time and large-scale investments needed for setting up these plants, American manufacturing efforts will require consideration of i) the US’s steel and aluminium tariffs, which will impact construction costs, ii) the US’s stringent regulatory measures, and iii) the need for a highly-skilled workforce.
MFN Drug Pricing and Innovation Risks
A compounding factor to pharma imports is the Trump administration’s new drug pricing policy. Introduced through an Executive Order – ‘Delivering Most-Favoured Nation (MFN) Prescription Drug Pricing to American Patients’ – in May 2025, the policy benchmarks prices for certain innovative drugs to the lowest prices paid by a basket of other developed countries. The basket of developed countries here is defined by the US Department of Health and Human Services as the lowest price in an OECD (Organization for Economic Cooperation and Development) country with a GDP per capita of at least 60 percent of the US GDP per capita. Seventeen pharma companies received letters from Trump outlining steps that need to be taken to ensure reduced drug prices for American patients under MFN and were given a 60-day window to respond.
While price control strategies may generate short-term gains, they will result in lowered profitability, severely reducing investments into research and development (R&D). This will hamper innovation in the pharmaceutical space and disincentivise companies from investing in US-based manufacturing. This would be inopportune as it could render the US and other states dependent on China — which is closing the innovation gap — for access to novel drugs and cutting-edge therapies, creating further health security concerns. While the policy is aimed at reducing the ‘global freeloading’ of American patients by lowering the cost of innovative drugs to that of economically comparable countries, it runs the risk of severely hampering innovation and undermining global health security. Attempts to introduce drug price control policies were made during Trump’s first presidency, but were met with legal challenges and resistance from various stakeholders.
Industry Response
The looming threat of pharma tariffs and MFN has cast uncertainty in the pharmaceutical industry and has even caused American hospitals and pharmacies to stockpile certain medications. On the industry front, the reactions have been mixed; the possibility that tariffs could be renegotiated has made companies uncertain over whether they should relocate production facilities to the US or not, while some major stakeholders have begun to make considerable investments in boosting US manufacturing capacity. US pharmaceutical leaders including Eli Lilly, Johnson & Johnson, AbbVie, Bristol Myers Squibb, Gilead, and Regeneron—alongside Switzerland’s Roche and Novartis, Japan’s Takeda, France’s Sanofi, and the UK’s AstraZeneca—have pledged a combined investment of nearly US$320 billion over the next five years to bolster and expand their American industrial and manufacturing capacity.
Indian drugmakers are hedging against the tariff risk by expanding their facilities in the US. Zydus Lifesciences will acquire the manufacturing facilities of Agenus Inc. — a US-based biotech company dedicated to producing immune therapies against cancer — marking its entry into the global biologics CDMO (Contract Development and Manufacturing Organisation) business. Syngene International Limited acquired its first biologics manufacturing site in the US, which focuses on monoclonal antibody manufacturing. SunPharma acquired Checkpoint Therapeutic earlier this year, which has been heralded as a strategic move by industry experts. Through this acquisition, Sun Pharma gains Unloxcyt, the first FDA-approved therapy for advanced cutaneous squamous cell carcinoma (cSCC), strengthening its leadership in immuno-oncology for skin cancer. These efforts enhance market access, contribute to health security by diversifying company portfolios and production locations, and align with India’s imperative to strengthen its research and development of new drugs.
Way Forward
Prioritising alternatives to tariffs is crucial for the pharmaceutical industry. To reduce the dependence on American revenue sources for innovation in drug-making, European pharma chiefs from Novartis and Sanofi have called on Europe to raise its drug prices to encourage innovation and to act as a counter to US tariff threats. Tax incentives or subsidies could promote US manufacturing and could be applied as instruments to encourage greater transparency over drug pricing and supply chains. Tariffs on pharma, including Indian generics, will raise US drug prices, trigger shortages, and spur reliance on Chinese APIs. Instead, negotiations can centre on securing manufacturing commitments from India without raising costs, with the possibility of further expansion to US sites for drugs with high profit margins.
Conclusion
US-India pharmaceutical trade is vital for global health. High US tariffs on Indian generics could raise drug costs, threaten innovation, destabilize supply chains, and increase dependence on China, risking health security.
Lakshmy Ramakrishnan is an Associate Fellow with the Health Initiative at the Observer Research Foundation.