Pharma tariffs expand to smaller drugmakers as industry warns of R&D pressure

Mid-sized and smaller pharmaceutical companies are facing increased financial exposure as Section 232 tariffs extend beyond the largest manufacturers in the sector. Industry representatives warn that these measures threaten to divert scarce resources away from research and development, potentially delaying the arrival of new treatments. The policy shift forces companies without specific exemptions or agreements to absorb rising import costs, reconsider manufacturing locations, or pass increases on to buyers who are already sensitive to drug prices. A recent KFF poll conducted between February 24 and March 2 indicated that 82% of U.S. adults consider the cost of prescription drugs unreasonable, highlighting the limited capacity for price increases.

Chris Young, principal of trade and customs at KPMG, noted in an emailed statement that the expanding scope of the tariffs means smaller importers and drugmakers are now under greater pressure. He explained that the financial burden on any given company will depend on its onshoring commitments, pricing strategies, product mix, and sourcing arrangements. Consequently, near-term cost and compliance efforts must now be integrated with longer-term decisions regarding manufacturing and supply chains. The administration initially imposed these tariffs under Section 232 of the Trade Expansion Act of 1962, citing national security grounds to reduce dependence on overseas drug production and encourage domestic manufacturing.

The tariff structure offers varying rates based on corporate commitments. Companies with approved onshoring plans face a 20% rate, which is scheduled to rise to 100% by April 2, 2030. Those that pair an onshoring plan with a most-favored-nation drug-pricing agreement can qualify for zero tariffs through January 20, 2029. Specific country arrangements also set lower rates, with products from the EU, Japan, South Korea, Switzerland, and Liechtenstein facing a 15% tariff. UK-origin products benefit from zero tariffs through January 19, 2029, provided they are part of a pricing arrangement with the U.S.

The trade organization BIO has challenged the policy’s implications for innovation. In an April statement, president and CEO John F. Crowley argued that tariffs divert resources from research and development, thereby weakening American biotech against China’s rising industry. However, a Commerce Department notice published on September 23 provides significant exemptions for research purposes. Products and ingredients imported solely for clinical trials, R&D, or other noncommercial use receive a 0% additional tariff. Specialty medicines, including cell and gene therapies and antibody-drug conjugates, also qualify for zero tariffs if they originate from jurisdictions with trade and security framework agreements or meet an urgent U.S. health need.

Generic medicines and biosimilars are currently outside the scope of these Section 232 tariffs. However, the April proclamation directs the Commerce Department to assess within a year whether to extend the measures to generics. Separately, the administration announced a phased plan for imported generics in July, which includes no duties through July 2028, followed by a 100% rate, rising to 200% a year later. Building new manufacturing facilities can cost up to $2 billion and take five to ten years, a timeline that poses significant challenges for small biotechs that typically rely on contract manufacturers.