A potential blessing in disguise for pharma

Donald Trump delivered two tariff shocks to India last week — one official, the other a prelude to a likely official decision, announced through his social media platform. The first, effective from July 24, imposes a 10% tariff on imports from India under Section 301 of the Trade Act of 1974, following investigations into the use of forced labour in exports; pharmaceuticals, however, are exempted. The second, announced on his Truth Social platform, is that imported generic medicines will face a 100% tariff for one year from August 1, 2028, rising to 200% thereafter.

The 200% shock is not aimed specifically at India, but the US is a major destination for Indian pharma exports. No formal order has been issued yet, though it appears to be a continuation of the proclamation of April 2, which imposed a 100% tariff on imports of patented medicines and their active pharmaceutical ingredients (APIs) on national security grounds under Section 232 of the Trade Expansion Act of 1962. That proclamation had stated that measures to address such concerns arising from import of generics, biosimilars, and their ingredients would be considered later.

If implemented, the 200% tariff will have a deep impact. What are the likely implications for the Indian pharma industry, which is heavily exposed to the US market, and for healthcare in the US?

The US is the most significant export market for the Indian pharma industry and a key driver of its growth. Last year, Indian firms exported pharmaceutical products worth $28 billion, of which 36% went to the US. But in formulations (finished dosage forms), where India has a strong comparative advantage globally, the US share was 41%. This means that US has a special role in the growth of Indian pharma industry, which earns about half of the income from exports, primarily of formulations. Interestingly, in the quantity of formulations exported, the US share is much lower — 17% in 2025. This shows that the US is critical to the profit generation of this industry, not merely to its volumes.

A 200% tariff is therefore not going to deter Indian firms from engaging with the US market. Some leading firms are likely to invest in the US to manufacture. However, such investments may not be aimed solely at tariff-jumping, but be a part of an integrated strategy to move up the value chain and diversify. At the SelectUSA Investment Summit in May, Indian industry leaders pledged an investment of $20.5 billion, of which $19 billion was from pharma. It included Sun Pharmaceutical’s $11.8-billion takeover of New Jersey-based Organon. With this acquisition, Sun Pharmaceuticals will gain access to Organon’s commercial network spread across 140 countries and a strong foothold in China, currently the hub of pharma innovation.

Another leading Indian firm, Lupin, last year announced a cumulative investment of $250 million in Florida for R&D and the manufacture of more than 25 critical respiratory medicines, including lifesaving albuterol inhalers. Respiratory medicines such as inhalers are considered complex generics.

A number of Indian pharma firms have already invested in the US to establish R&D centres. Trump’s renewed threat may push them, and some other leading firms, to invest further. It is less likely that such investment will go into the production of commodity generics than into complex generics and R&D. Trump’s threat may thus turn out to be a blessing in disguise for the Indian pharma industry, which the government has long been pushing to move up the value ladder.

In commodity generics, which are relatively simpler to produce, Indian firms are likely to keep exporting from India. It makes little business sense to invest in manufacturing them in the US. It is precisely the higher cost of production that led to outsourcing of API manufacturing to countries like India and China; producing in the US from the basic stages would only raise the cost of the final product.

This policy will nonetheless have a major impact on US healthcare. Generic medicines supplied by Indian firms accounted for 47% of all generic prescriptions in the US in 2022. In certain therapeutic areas such as hypertension, their share is as high as 60%, a measure of their contribution to the US healthcare system. Overall, medicines from Indian companies provided $219 billion in savings to the US healthcare system in 2022. A 200% tariff will only squeeze those savings, as the additional cost is most likely to be passed on to US buyers and patients.

A tariff designed to secure America’s medicine supply may well end up raising the cost of its most affordable medicines, while nudging Indian firms precisely where New Delhi has long wanted to.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.