An investigation into the national security implications of pharma imports has been underway for two weeks, the Trump administration disclosed Monday.
The Department of Commerce initiated what’s known as a Section 232 investigation targeting pharmaceuticals and related products April 1, according to a Federal Register filing (PDF). A separate probe into semiconductors was launched at the same time.
A Section 232 investigation, enabled by the Trade Expansion Act of 1962, looks into the effects of certain imports on U.S. national security. If a threat is identified, the president can then impose trade restrictions, such as tariffs, to correct the situation or take other non-trade-related actions as deemed necessary, according to an explanation from the Commerce Department.
The new probe targets “both finished generic and non-generic drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients and key starting materials, and derivative products of those items,” according to the filing.
The Commerce Department will examine topics such as the demand for pharmaceuticals in the U.S., the role of foreign supply chains, the concentration of drug imports from a small number of producers and the potential for foreign countries to weaponize their control over pharma supplies.
After the probe’s scheduled official publication April 16, public comments on the issue will be open for 21 days. An investigation report to President Donald Trump is due in 270 days.
Still, the Trump administration may aim to dramatically beat that deadline. Over the weekend, Commerce Secretary Howard Lutnick said tariffs on the pharma and semiconductor industries will come “in the next month or two.”
Sectoral tariffs on pharmaceuticals, semiconductors and autos are “not available for negotiation by other countries,” Lutnick said Sunday on ABC News.
“They are just going to be part of making sure we reshore the core national security items that need to be made in this country,” he said.
An ongoing 232 investigation doesn’t prevent the Trump administration from imposing tariffs on pharmaceuticals on an emergency basis. Instead, a conclusive Section 232 investigation provides the president justification to add tariffs over longer timelines and to potentially take further actions as he tries to onshore domestic manufacturing. Trump has used findings from previous Section 232 investigations to justify his recent 25% tariffs on steel, aluminum and the auto industry.
In recent months, Trump has threatened 25% or higher tariffs on pharmaceuticals as well. Pharma companies are lobbying the White House for a better deal, including a phase-in approach with a gradual implementation. But, based on the president’s recent comments, industry watchers fear that the tax rate may reach even higher, Jefferies analysts said in a Monday note.
“When the pharmaceutical companies started to go to Ireland, I would have said, ‘that’s OK, if you want to go to Ireland. I think that’s great.’ But if you want to sell anything into the United States, I’m going to put a 200% tariff on you so you’re never going to be able to sell anything into the United States,” Trump said during a March meeting with Ireland’s leader, Micheál Martin, at the White House.
A 25% tariff would be painful to the pharma industry’s profits, Jefferies analysts concluded. But, overall, the impact is “surmountable for most innovative companies given reasonable gross margins and global manufacturing footprints,” William Blair analysts said in a Monday note.
As the William Blair team sees it, the greatest risk falls on generic drug supplies, which make up 90% of prescriptions in the U.S.
In a statement, the CEO of the Association for Accessible Medicines (AAM), John Murphy, said tariffs will “exacerbate current shortages that hinder patient access” if they are are not joined by “substantive regulatory and reimbursement changes.”
The AAM urges the administration “to work with us on a suite of reforms that prioritize patients, national security, and ultimately will lead to more resilient and reliable access here in the U.S.,” he added.
Generics account for 1.2% of total U.S. healthcare costs despite representing 90% of all prescriptions in the country. Manufacturers of these drugs are already operating under “razor-thin margins” and can’t tolerate large tariffs, Kathleen Jaeger, U.S. spokesperson for the Indian Pharmaceutical Alliance, said in a statement.
“Adding tariffs on America’s affordable medicine partners in India would make it even worse—for patients, the healthcare system and for America’s national security,” she said.