Trump’s Tariff Plans Could Disrupt US Access to Indian Generic Drugs

US Healthcare Sector Seeks Exemption for Pharmaceuticals

With the April 2 deadline approaching for the Trump administration’s reciprocal tariffs, the US pharmaceutical industry is urging exemptions for low-cost generic drugs, fearing higher prices and supply chain disruptions.

The Healthcare Distribution Alliance (HDA), representing primary pharma distributors, has warned that tariffs on generics will increase costs for consumers, reduce supply, and exacerbate drug shortages. The Association for Accessible Medicines (AAM), representing US-based generic drug manufacturers, has echoed similar concerns, emphasizing that generic producers cannot absorb new costs and are already struggling with low margins.

India’s Pharma Industry on High Alert

India, the largest supplier of generic drugs to the US, is closely monitoring these tariff developments. The United States is India’s biggest pharmaceutical export market, with exports worth $8.73 billion in 2024, accounting for 31% of India’s total pharma exports.

Currently, the US imposes almost zero duties on pharma imports, while India levies a 10% tax on American pharma imports. If the US introduces a 28% tariff on Indian pharmaceutical products, as estimated in a PwC report, it could lead to a $3.4 billion tariff burden, affecting both Indian exporters and American healthcare providers.

Cost Impact on US Healthcare System

A tariff-induced rise in drug prices could have significant consequences for Medicare and Medicaid, the US government’s health insurance programs. The HDA has highlighted that distributors operate on razor-thin profit margins of just 0.3%, and any tariff burden will ultimately be passed on to insurers and patients.

The AAM has warned that higher costs could force generic manufacturers to exit unprofitable markets, leading to shortages of essential medications. This comes at a time when Indian generics account for over 90% of all US prescriptions and four out of every 10 drugs in the US are produced by Indian firms.

Indian Generics Have Saved the US Billions

Over the past decade, Indian generics have played a crucial role in reducing US healthcare costs. According to analytics firm IQVIA, Indian generics saved the US healthcare system $219 billion in 2022 alone and $1.3 trillion between 2013 and 2022.

India also supplies nearly half of the generic drugs covered by Medicare and commercial insurance plans, making it a critical player in the affordability of American healthcare. If tariffs are imposed, US patients and the healthcare system could face significantly higher costs, contradicting the Trump administration’s goal of lowering drug prices.

Can Trump Force Pharmaceutical Manufacturing to the US?

The Trump administration believes tariffs will encourage companies to shift pharmaceutical production to the US, thereby reducing reliance on foreign manufacturing and balancing trade deficits. However, industry experts argue that setting up large-scale pharmaceutical manufacturing in the US is neither practical nor cost-effective in the short term.

Uday Bhaskar, former Director General of Pharmexcil India, emphasized that India has the largest number of USFDA-compliant manufacturing facilities outside the US, and it will not be easy for other countries to replicate this advantage.

Indian Drugmakers Considering Manufacturing and Pricing Adjustments

For Indian pharmaceutical companies, a 10% reciprocal tariff could severely impact profit margins, as EBITDA margins for the base business typically range between 5-15%. Indian companies are now considering portfolio restructuring and manufacturing realignment to mitigate the impact of potential US tariffs.

The India Pharmaceutical Alliance (IPA) has suggested that India could consider lowering tariffs on US pharmaceutical imports to zero as a negotiation strategy. However, others believe India should negotiate from a position of strength, given its dominance in the global generic drug market and the significant cost savings it provides to the US healthcare system.

Bhaskar stated, “Generic drugs are our strength. We should negotiate from strength and not kneel before the US government. The US has saved billions of dollars from Indian generics. It’s not that easy to replace this supply chain, and India should leverage this advantage in trade talks.”