US slaps 15% tariff on European medicines, fuelling warnings of higher prices and industry fallout
A new trade agreement between the United States and the European Union will impose a 15 percent tariff on most goods from EU countries, including branded pharmaceuticals, marking a shift from their prior exemption from duties.
Analysts estimate that the tariff could cost the pharmaceutical industry between US$13bn and US$19bn.
Reuters reported that the White House and the European Commission announced the agreement on Sunday.
While the US will implement a 15 percent tariff on most EU imports, including pharmaceuticals, US goods exported to EU member states will face no tariffs.
Some generic drugs will be exempt from duties, although details have not been released.
Medicines are the EU's largest export to the US by value, as reported by Reuters, with Europe accounting for approximately 60 percent of all US pharmaceutical imports.
According to the US Pharmacopeia, Europe manufactures active ingredients for 43 percent of brand-name drugs consumed in the US and for 18 percent of its generic drugs.
Société Générale economists called the deal “asymmetric and unbalanced,” noting that the EU agreed to reduce rather than increase tariffs.
Capital Economics forecast, cited by CBS News, that the average tariff on EU goods entering the US will rise from 1.2 percent in 2024 to 17.5 percent, cutting the EU’s annual GDP by 0.2 percent.
EU countries ship more than US$300bn in goods to the US annually, over 20 percent of total US imports.
US President Donald Trump, who had previously warned of tariffs as high as 200 percent on pharmaceutical imports, said that the new 15 percent rate will be final and exempt from additional national-security-related tariffs.
Both pharmaceutical tariff regimes are expected to come into effect next month.
The Wall Street Journal said that Trump has used Section 232 of US law to investigate whether pharmaceutical imports threaten national security, a move that could affect manufacturers in India and China, key players in the generic drug market.
According to Reuters, UBS analyst Matthew Weston said he expects the agreement to include protections for EU pharmaceutical exports amid the ongoing national security investigation, pointing to similar discussions with the UK and Switzerland.
ING analyst Diederik Stadig also noted that while no additional tariffs are expected, “nothing is completely clear until a trade deal is inked.”
Stadig estimated the new levies could add US$13bn to industry expenses without mitigation.
Bernstein analyst Courtney Breen placed that figure at US$19bn, but noted that companies may absorb some of the cost through measures such as stockpiling and new contract research deals.
Sanofi recently announced the sale of a New Jersey facility to Thermo Fisher, which will continue producing its therapies.
Roche said it is increasing US inventories to prepare for tariff-related disruption.
Some pharmaceutical firms, including Sandoz, indicated the immediate impact would be manageable. Weston said the implications for Sandoz this year should remain limited.
Despite potential added costs, shares in Sanofi, Roche, and Sandoz closed higher on Monday, up between 0.5 percent and 1 percent.
Pharmaceutical companies, particularly those producing generic drugs, expressed concern over the tariffs' effect on low-margin products.
Sandoz CEO Richard Saynor said that generic medicines are often sold at prices lower than a pack of M&Ms, and that tariffs would have a disproportionate effect, cited in The Wall Street Journal.
He added that moving manufacturing to the US would be loss-making under current market conditions.
Saynor said that while the company could absorb some costs, options might include raising prices or withdrawing products from the US market if margins continue to erode.
He described the US pharmaceutical sector as “one of the most uncertain markets in the world,” citing litigation hurdles and a payer landscape favouring originator companies.
The New York Times reported that insurers in New York, Oregon, and Maryland have already told regulators that tariffs will drive them to raise premiums in 2025.
Although some patients may be shielded from higher drug prices through contracts or penalties, others with deductibles or co-pays may face increased out-of-pocket costs.
The New York Times said that industry group PhRMA said in May that “tariffs are not the answer for promoting greater domestic production of these products.”
Saynor echoed this, calling for structural reforms to create a sustainable environment for manufacturing in the US.
He said that the industry has had good access to the Trump administration and is working on ways to ensure affordable, high-quality medicines remain available to American patients.
Meanwhile, other sectors have also raised concerns. Unione Italiana Vini estimated a US$371m hit for EU winemakers and called for support measures.
The German Association of the Automotive Industry noted that a 15 percent tariff is a reprieve from previous 25 percent rates but warned of continued impact on German manufacturers.
CBS News said that the EU also committed to buying US$750bn in US energy by 2028, up from US$80bn per year.
While the White House described the agreement as one that would boost US manufacturing and exports, no further comment was provided.
