Trump Unveils 100% Drug Tariffs Effective Oct 1, Domestic Production Becomes Exemption Pathway

TradingKey - U.S. President Donald Trump announced on Thursday that the United States will impose a 100% tariff on "any branded or patented drugs entering the United States" starting October 1.

Trump detailed key provisions of the policy on social media — projects "under construction" can be exempt from this round of tariffs. He specifically defined "under construction" as production facilities that have already "broken ground" and/or are "under construction."

“The actual comment from the President is direct but its impact may be somewhere between nebulous and negligible,” Jared Holz, an analyst with Mizuho, said in a note to clients. “All major players have some production presence domestically and almost all have announced increased investment directly tied towards local manufacturing.”

Trump is utilizing Section 232 of the Trade Expansion Act to levy product taxes, a provision that allows the government to impose tariffs without congressional action when imports are deemed a national security threat. This method has previously been used to impose tariffs on automobile, copper, steel, and aluminum imports.

In fact, this is not the first time Trump has threatened to tax pharmaceuticals. In August, he had warned of potentially imposing tariffs of up to 250% on imported drugs — the highest rate he has threatened to date. He stated that initially, "small tariffs" would be imposed, followed by increasing the rate to 150% within one to one and a half years — the "maximum limit" — and potentially further raising it to 250%.

Trump views tariffs as a core tool to force pharmaceutical manufacturers to increase U.S. domestic production and strengthen critical drug supply chains, claiming this will help fulfill his promise to lower drug costs, though experts say this is unlikely to be achieved.

Experts also note that the deeper challenge lies in the highly globalized pharmaceutical supply chain, where key drug ingredients and intermediates rely on multi-country production, making it unlikely that the new tariffs will significantly reduce America's dependence on foreign active pharmaceutical ingredients.

Notably, the tariffs Trump announced specifically target "branded or patented drugs" and do not cover generic drugs, which account for the vast majority of prescriptions. Experts warn this could exacerbate drug shortages. Generic drugs already operate on thin profit margins, and if they were to be included in the tax scope in the future, manufacturers might choose to exit the U.S. market due to inability to absorb costs, further intensifying domestic drug shortages.

“Trump is never going to be done with tariffs,” said Deborah Elms, Head of Trade Policy at the Hinrich Foundation. “This is an incredible breathtaking expansion of tariff coverage that will affect everyone including those countries that thought that they have a deal in place under those reciprocal tariffs that are not covered by these sector-specific new applications.”

On the same day announcing drug tariffs, Trump also unveiled a series of additional tax plans targeting other imported goods: cabinets and bathroom vanities face a 50% tariff, upholstered furniture is subject to a 30% tariff, and heavy-duty trucks manufactured outside the United States are hit with a 25% tariff.

This round of tariff news triggered international market turbulence. Asian stock markets fell in response, with major indices in Japan, Australia, and South Korea opening lower as pharmaceutical stocks faced significant sell-offs.