Donald Trump’s fresh message to the global pharmaceutical industry to either shift manufacturing base to the US or be ready to face prohibitive tariffs of as high as 200% has Indian drug-makers worried. While the tariff quantum looks too high to be real, they feel the need to diversify India’s export destinations in a more agile fashion to compensate for any loss of the US market, due to Trump’s policies.
A top industry association official told FE:“No Indian company can sell drugs at that rate (200% tariff) in the US. The tariffs have to be much lower or the companies will have to start looking for other geographies to sell their products. There are a lot of emerging markets in Africa and Asia which can be tapped by the Indian companies.”
In a recent note, Reji Joseph, associate professor at Institute for Studies in Industrial Development (ISID) said that the Indian pharma firms may have to absorb some of the increased costs following US’ retaliatory tariffs. “But over the long run the industry should develop strategies to diversify export markets and establish more geographically distributed manufacturing hubs to mitigate future risks,” he said.
India currently has a 13% share in the US generic drugs market by value with its annual shipments worth about $10 billion. But it accounts for more than 45% of such products sold in that country, as Indian medicines are among the least expensive. Nearly 90% of the US pharma market by volume is constituted by generic products, while in value terms these account for barely 15%.
Currently, the Indian pharma exports to the US face zero tariffs while India retains a tariff of around 11% on an average, although duties have been progressively reduced on several lifesaving medicines, including high-value ones over recent years.
India’s export formulations, active pharmaceutical ingredients (APIs) and other pharmaceutical products to the US. More than a third India’s pharma exports are to the US.
Experts said that it’s not going to be easy for the US to slap high tariffs given that there’s a huge dependence on India to supply generics drugs to the US. “Medicine sales are largely price-inelastic and therefore the demand for them will not decline even when the price goes up. Whether consumers will end up paying more would depend on the availability of cheaper substitutes. It is the price advantage that drives Indian generics in the US, and therefore, it may not be easy to find cheaper substitutes. Therefore, the possibility of US consumers ending up paying more for medicines is higher,” Joseph said.
In mid-May, Trump issued an executive order seeking to slash prices of prescription drugs by 30-80%. The move was aimed at facilitating the US consumers “pay the same price (for medicines) as the nation that pays the lowest price anywhere in the world”. The order had provided a 30-day window for implementation, but lacked concrete details about how the cost of the price cuts will be shared among the stakeholders, but hasn’t since been acted upon.
Industry experts feel that if implemented, such a move could hit Big Pharma and monopolistic drug distributors in the US, which corner big margins in proprietary drugs business. The policy could also have adverse implications for pharma companies in other parts of the world.
“In case high tariffs are imposed, we will have to find a balance, where some part of the increased cost will have to be absorbed by the end consumers in the US. Indian drug makers will have to absorb some costs. We can work out something,” said the association official quoted above.
“A potential 200% duty on pharma could severely impact India’s industry, which supplies large volumes of affordable medicine to the US. Even though the Indian pharma stocks have remained largely unaffected in the immediate aftermath of Trump’s comments, experts caution that such levies could dampen demand, disrupt supply chains, and raise prices for US consumers,” said an industry expert.