Within days, the Department of Commerce may release the results of its Section 232 investigation into the national security risks of imported pharmaceuticals. Senior administration officials, including President Trump himself, have cast these findings as the first step in imposing new tariffs of up to 250% on imported medicines.
America has a real problem with certain drug imports -- a concern often discussed in the past, but not acted upon until now. China, a communist adversary, supplies nearly 90% of our generic antibiotics and 8% of all active pharmaceutical ingredients. In the event of conflict, Beijing could threaten or choke off supply, just as it has demonstrated it is willing to do for rare earth minerals. Section 232 tariffs were designed for precisely these sorts of national security risks.
But security-motivated tariffs will only help America if they are targeted, not overly broad. Such tariffs are functionally "Pigouvian" taxes on socially harmful behavior. Here, the Pigouvian tax imposes costs on China's coercive leverage over our drug supply. That'd encourage manufacturers to diversify or reshore production away from our foremost adversary.
However, hefty Pigouvian taxes, if targeted at allies like Switzerland, the United Kingdom, and Japan -- rather than adversaries like China -- could backfire spectacularly during the remainder of President Trump's term. They could result in short-term drug shortages, as well as long-term damage to America's biotech industry. The White House would be wise to keep the punitive taxes focused squarely on China.
Most branded medicines prescribed to American patients are made in America. However, many American patients also rely on a number of common medications that are exclusively manufactured abroad in friendly nations. Abilify, an antipsychotic for schizophrenia and bipolar disorder, is made in Japan. The U.K. produces many of the Ellipta inhalers that millions of Americans rely on for asthma and chronic obstructive pulmonary disease (COPD). Switzerland is home to plants that manufacture Cosentyx for autoimmune disease and Bavencio for cancer. The list goes on.
It is possible that even triple-digit tariffs would not compel companies to shift production of these drugs to the United States in the near future, and even if they did, short-term shortages are still likely.
First, there's the cost and time of building new factories -- a process that can take the better part of a decade, given America's lengthy permitting process generally and the additional regulatory approvals needed for biotech plants specifically.
In addition to those direct expenses, relocating plants would saddle companies with a host of domestic political and reputational costs. The companies that manufacture those drugs already have well-established vendor networks and a trained local labor force in place.
Uprooting those, in response to a tariff threat, would prove about as popular with Japanese or European voters as the demand that Ford and General Motors move their plants to Geneva or Tokyo would prove with Americans.
If companies keep their plants in place, someone has to pay the tax -- whether foreign companies, American companies, or patients. But if the triple-digit cost increases cannot be passed along, companies may simply stop offering the medicines for sale at all in the United States.
In such scenarios, hospitals and pharmacies would quickly exhaust their existing supplies of the drugs. Once that happens, patients would have to switch to less safe and effective alternatives or go without their medicines. The Trump-hostile media would eagerly broadcast the short-term implications, potentially damaging the president and his party.
The long-term consequences could be even worse.
Biopharma is America's most research-intensive industry, with firms collectively reinvesting 34% of their revenue into research and development, according to a recent study in Nature. And since many large biopharmaceutical companies are limited in their ability to raise prices short term for regulatory and contractual reasons, drug manufacturers themselves will have to pay part of the tariffs, as one leading CEO recently noted.
Evidence indicates that a 15% tariff on medicines imported from the European Union would increase companies' expenses by up to $19 billion. Firms will have no choice but to slash other costs, including R&D budgets.
Triple-digit tariffs on medicines imported from leading non-EU allies, like Britain, Switzerland, and Japan, would push that tab even higher. And dollars spent on tariffs are dollars not spent on clinical trials or next-generation therapies.
This damage to U.S. innovation would come at a time when China is already gaining ground: it now contributes to more than a quarter of new drug development worldwide. Weakening Western firms with across-the-board tariffs would be a gift to Beijing.
If Washington taxes drugs from Europe, the U.K., and Japan as though they were made in China, we will end up sicker, poorer, and less secure. By contrast, focusing tariffs squarely on Chinese suppliers will reduce our strategic vulnerability while preserving the innovation that has kept America the global leader in life sciences.
Tomas J. Philipson is an economist at the University of Chicago and served as a member and acting chairman of the president’s Council of Economic Advisers, 2017–20.
America has a real problem with certain drug imports -- a concern often discussed in the past, but not acted upon until now. China, a communist adversary, supplies nearly 90% of our generic antibiotics and 8% of all active pharmaceutical ingredients. In the event of conflict, Beijing could threaten or choke off supply, just as it has demonstrated it is willing to do for rare earth minerals. Section 232 tariffs were designed for precisely these sorts of national security risks.
But security-motivated tariffs will only help America if they are targeted, not overly broad. Such tariffs are functionally "Pigouvian" taxes on socially harmful behavior. Here, the Pigouvian tax imposes costs on China's coercive leverage over our drug supply. That'd encourage manufacturers to diversify or reshore production away from our foremost adversary.
However, hefty Pigouvian taxes, if targeted at allies like Switzerland, the United Kingdom, and Japan -- rather than adversaries like China -- could backfire spectacularly during the remainder of President Trump's term. They could result in short-term drug shortages, as well as long-term damage to America's biotech industry. The White House would be wise to keep the punitive taxes focused squarely on China.
Most branded medicines prescribed to American patients are made in America. However, many American patients also rely on a number of common medications that are exclusively manufactured abroad in friendly nations. Abilify, an antipsychotic for schizophrenia and bipolar disorder, is made in Japan. The U.K. produces many of the Ellipta inhalers that millions of Americans rely on for asthma and chronic obstructive pulmonary disease (COPD). Switzerland is home to plants that manufacture Cosentyx for autoimmune disease and Bavencio for cancer. The list goes on.
It is possible that even triple-digit tariffs would not compel companies to shift production of these drugs to the United States in the near future, and even if they did, short-term shortages are still likely.
First, there's the cost and time of building new factories -- a process that can take the better part of a decade, given America's lengthy permitting process generally and the additional regulatory approvals needed for biotech plants specifically.
In addition to those direct expenses, relocating plants would saddle companies with a host of domestic political and reputational costs. The companies that manufacture those drugs already have well-established vendor networks and a trained local labor force in place.
Uprooting those, in response to a tariff threat, would prove about as popular with Japanese or European voters as the demand that Ford and General Motors move their plants to Geneva or Tokyo would prove with Americans.
If companies keep their plants in place, someone has to pay the tax -- whether foreign companies, American companies, or patients. But if the triple-digit cost increases cannot be passed along, companies may simply stop offering the medicines for sale at all in the United States.
In such scenarios, hospitals and pharmacies would quickly exhaust their existing supplies of the drugs. Once that happens, patients would have to switch to less safe and effective alternatives or go without their medicines. The Trump-hostile media would eagerly broadcast the short-term implications, potentially damaging the president and his party.
The long-term consequences could be even worse.
Biopharma is America's most research-intensive industry, with firms collectively reinvesting 34% of their revenue into research and development, according to a recent study in Nature. And since many large biopharmaceutical companies are limited in their ability to raise prices short term for regulatory and contractual reasons, drug manufacturers themselves will have to pay part of the tariffs, as one leading CEO recently noted.
Evidence indicates that a 15% tariff on medicines imported from the European Union would increase companies' expenses by up to $19 billion. Firms will have no choice but to slash other costs, including R&D budgets.
Triple-digit tariffs on medicines imported from leading non-EU allies, like Britain, Switzerland, and Japan, would push that tab even higher. And dollars spent on tariffs are dollars not spent on clinical trials or next-generation therapies.
This damage to U.S. innovation would come at a time when China is already gaining ground: it now contributes to more than a quarter of new drug development worldwide. Weakening Western firms with across-the-board tariffs would be a gift to Beijing.
If Washington taxes drugs from Europe, the U.K., and Japan as though they were made in China, we will end up sicker, poorer, and less secure. By contrast, focusing tariffs squarely on Chinese suppliers will reduce our strategic vulnerability while preserving the innovation that has kept America the global leader in life sciences.
Tomas J. Philipson is an economist at the University of Chicago and served as a member and acting chairman of the president’s Council of Economic Advisers, 2017–20.
