Prescription drugs become a target in Trump's trade war

By Maggie Fick

LONDON (Reuters) -U.S. President Donald Trump late on Tuesday reiterated he would impose tariffs on imports of pharmaceutical products that have long been spared from past trade disputes due to the potential for harm to patients.

Trump excluded them from his announcement of sweeping import tariffs last week, but in recent weeks he introduced tariffs on raw ingredients and supplies from China that are used by the industry, and has repeatedly singled out the manufacturing of drugs in Europe as a problem he intends to tackle through a tariffs announcement.

Tariffs could be "25% and higher", he has said. Here is what you need to know:

WHAT IS TRUMP'S STANCE ON THE PHARMA INDUSTRY?

The Republican president has said major drugmakers such as Eli Lilly, Johnson & Johnson, and Pfizer should manufacture more of their medicines for American patients in the United States to lessen dependency on other countries and increase tax revenue.

Many brand name drugs are made partly in Europe. Ireland, with its low corporate tax rate, is a hub for production of the active ingredients in blockbuster medicines, including Lilly's weight-loss injection Zepbound and Merck's huge-selling cancer immunotherapy Keytruda.

Trump has also criticised U.S. pharma companies for registering their intellectual property in Ireland because of the low corporate tax rate.

In his tariffs announcement on April 2, Trump also said the U.S. no longer produces enough antibiotics, which like most generic drugs consumed by Americans are made in China and India.

Trump says it is unfair that the U.S. pays higher prices for brand name drugs than other wealthy nations, in particular in Europe.

"These other countries are smart," he said on Tuesday. "They say you can't charge more than $88 otherwise you can't sell your product and the drug companies listen to them."

The U.S. does not buy drugs directly for a national health system, as countries such as England and Germany do, instead relying on the private sector to manage drug price negotiations for both government and private health plans. Last year, the U.S. government began to directly negotiate prices for a limited number of drugs used by the federal Medicare health program under President Joe Biden's Inflation Reduction Act. 

WHAT IS THE INDUSTRY'S RESPONSE?

Drugmakers have lobbied Trump to phase in tariffs on imported pharmaceutical products to reduce the impact of the charges and to gain time to shift manufacturing, sources told Reuters.

Several drugmakers, including Lilly, have announced plans to increase manufacturing investments in the U.S. since Trump took office. Novo Nordisk and others have cited ongoing efforts to make more of their medicines for the U.S. market in the country. 

Trade group PhRMA says building a new production facility in the U.S. can cost up to $2 billion and take 5 to 10 years before it is operational, including time and cost to meet regulatory requirements, backing up the industry argument for tariffs not being levied immediately.

Some companies have also taken the unusual step of sending more medicines by air from Europe to the U.S. to stockpile ahead of possible tariffs.

WHEN COULD TRUMP ANNOUNCE PHARMA TARIFFS? 

Trump's executive order last week listed pharmaceuticals alongside lumber, semiconductors and other sectors that could be subject to investigation under Section 232 of the 1962 U.S. Trade Act to determine the effects of imports on U.S. national security.

The investigation led by the Commerce Department must be completed 270 days after it is announced. 

The timing is not certain, but on April 8 Trump said that the announcement on pharma tariffs would come "very shortly", without referencing Section 232.

Creating further uncertainty, Trump on Wednesday said he would temporarily lower new tariffs on many countries, even as he raised them further on imports from China, in a sudden reversal that sent U.S. stocks sharply higher.

WHAT WOULD BE THE IMPACT?

Industry executives and drug pricing experts say tariffs increase the risk of shortages of widely used, cheap generic medicines, such as antibiotics, which makers say they cannot afford to continue producing with the added costs.

Tariffs could also eat into the margins of expensive brand name pharmaceuticals and biotech medicines, and drugmakers say that could leave them with less money to invest in research and development for future medicines.

(Reporting by Maggie Fick; Additional reporting by Michael Erman and Patrick Wingrove in New York;Editing by Josephine Mason and Bill Berkrot)