Manufacturers of patented pharmaceuticals can escape the import tax by agreeing to join the president’s “most favored nation” program to reduce prices for American drugs or by establishing new factories to serve the American market, according to a senior administration official, who briefed reporters on condition of anonymity.
Companies that agree to build new plants in the United States will face 20 percent tariffs during construction, which must be completed before Trump leaves office.
The administration expects “most” of the patented drugs consumed by Americans to be produced in the United States, the official said. “We need to make sure our drug supply is protected, safe and domestic,” the official said.
Some imported drugs will face much lower tariffs under trade deals Trump negotiated with five U.S. trading partners.
Products from the European Union, Japan, South Korea and Switzerland will face 15 percent taxes, while medicines from the United Kingdom, which was the first to sign a deal with Trump, will be hit with a 10 percent tariff.
The White House has reached deals with 13 drugmakers and hopes to close four more soon, the official said.
The companies have already committed to investing $400 billion in new plants in the United States, the official said. On Thursday, the president signed an executive order formalizing the new tariff regime, which is designed to incentivize other drugmakers to lower prices.
Separately, Trump ordered changes to simplify current tariffs on industrial metals. Both actions show the White House is not bowing to Americans’ concerns about the high cost of living, even as the war in Iran is expected to exacerbate inflation and the November midterm elections approach.
The president also continues to fine-tune his tariff regime in the wake of the Supreme Court ruling that invalidated most of the import taxes he imposed on an emergency basis last year.
The tariffs at issue in Thursday’s announcement were imposed under a different law, Section 232 of the Trade Expansion Act of 1962, and are not affected by the high court’s decision.
The administration insists that foreign companies bear the brunt of U.S. tariffs, a claim disputed by leading economists. About 90 percent of tariff costs have been absorbed by U.S. importers, according to a study published last month by economists at Yale University and the University of California, Los Angeles.
The administration has decided to modify its 50 percent tariffs on steel, aluminum and copper to take into account what it described as cleverness by foreign exporters who under-declared the value of their shipments to reduce their customs bill. Going forward, a 50 percent tariff will be applied on the “full value” of imported metals paid by U.S. importers instead of the cost reported by the exporter, the official said.
The administration is also changing how tariffs are applied to “derivative” products that contain some steel, aluminum or copper. Products containing a smaller amount of metal, such as a perfume bottle with a metal lid, would not face tariffs.
Those containing a significant amount will be hit with a 25 percent tax.
The United States did not receive as much tariff revenue as it expected under the original approach, prompting the change. But the official dismissed suggestions that the review would result in higher prices.
“These will not have an impact on the price of the good on the shelf,” the official said. Consumers have a lot at stake in the administration’s handling of imported drugs.
Trump has insisted that reducing drug costs should be a political priority, a view shared by his advisers who have encouraged Republicans to focus on the issue before the November elections.
Last year, the administration launched its most favored nation initiative to lower U.S. drug prices by tying them to those in other countries with lower costs. Officials pressured some of the world’s largest pharmaceutical companies to voluntarily lower their prices in exchange for benefits such as tariff exemptions. The White House also launched a new government website, TrumpRx, aimed at helping Americans buy medications at discounted prices.
Pfizer, the first company to publicly announce drug price cuts in September, said the terms of its agreement with the administration included a three-year grace period during which the company’s products would escape tariffs.
Trump’s tariff threats were a “powerful tool” to achieve price cuts, Pfizer CEO Albert Bourla said at a White House news conference in September. Officials touted several Pfizer drugs that they said would have new discounts, such as an eczema treatment that would be available at an 80 percent discount.
“No one has ever seen anything like this. I got other countries to do it by threatening to impose tariffs,” Trump said in a speech last week, touting his administration’s drug price cuts. “We have to talk about it, that alone should win the midterms.”
Democrats have criticized Trump’s claims as hyperbolic, saying his deals have not always resulted in the cheapest prices available and have called on the White House to instead work on bipartisan legislation on drug prices.
The pharmaceutical industry has also criticized Trump’s tariff threats. “Imposing new tariffs on drugs would undermine new American investments because every dollar spent on a tariff is a dollar not available to build America or discover cures,” PhRMA, the industry’s main lobbying group, said last year.
About 6 in 10 adults say they are worried about being able to afford prescription drugs for themselves or their families, according to a survey released by KFF last month — the highest level of concern since KFF, a health policy polling organization, began polling on the issue in 2018.