The exact terms of the deal likely provide some relief for the EU’s pharmaceutical industry, which now appears to be immune to higher sectoral tariffs that the Trump administration aims to impose.
A little less than a month after the reveal of a wide-ranging trade deal between the United States and the European Union, the White House has shed more light on how it plans to tax pharmaceuticals and other products coming over from the bloc.Starting Sept. 1, the U.S. will impose a “Most Favored Nation” (MFN) tariff rate on generic pharmaceuticals sourced from the EU, including their ingredients and chemical precursors, according to a White House fact sheet issued Thursday. That undisclosed MFN rate will be "effectively zero or close to zero," according to a Q&A document released by the European Commission this week. Separately, as part of the original terms of the deal detailed in July, the U.S. has recommitted to imposing a base tariff rate of 15% on most other goods imported from Europe, including branded pharmaceuticals.The terms of the deal likely provide some relief for the EU’s pharmaceutical industry, which now appears to be immune to higher sectoral tariffs that the Trump administration aims to impose on other territories following the results of a Section 232 investigation into the national security implications of U.S. drug imports, The New York Times reports.The White House update also provides more clarity on the original communications around the EU deal, which suggested that certain generic drugs would be exempt from the 15% duty. Prior to Thursday’s communique, industry watchers were similarly unsure whether Section 232 tariffs might modify the baseline tariff rate established in Europe.Kristin Pothier, head of the U.S. life sciences sector at professional services firm KPMG, told Fierce Pharma that the new details are likely beneficial to the branded drug industry's planning around import taxes. "[T]oday's announcement of what appears to be a cap of 15% on branded drugs is likely to enable organizations to move forward with more confidence in their planning and strategies, even as they await the final outcome regarding comprehensive section 232 tariffs concerning other nations," she said in an emailed statement. Others, like the trade group the European Federation of Pharmaceutical Industries and Associations (EFPIA), remained unconvinced of the trade deal's benefits for the industry. The 15% tariff rate on branded drugs "breaks a 30-year commitment between governments to protect patients by eliminating tariffs on innovative medicines and their components," the organization said in a Thursday press release. "With a potential 15% U.S. tariff on pharmaceuticals, no clear path for exemptions for innovative medicines and no visibility on future trade and pricing policies, we remain concerned for the future of patients and our sector in Europe," Nathalie Moll, EFPIA's director general, added in a statement. As for the off-brand component of the deal, the U.S. sources a large portion of its drug ingredients (35%) for generic medicines from India, according to an April report from the United States Pharmacopeia (USP), which publishes quality, identity and purity guidelines for generic and biosimilar drugs in the U.S. Europe makes up the second biggest market for generic active pharmaceutical ingredients (API) at 18%. The U.S. itself produces around 12% of the ingredients for its generic drug supply, the report notes.Throughout the year, analysts, industry watchers and pharmaceutical executives have touted the ability of large innovative drugmakers to shoulder the worst of the Trump administration’s tariff threats. But manufacturers of generic medicines are in a much more precarious position and enjoy “little resilience” in the face of potential tariffs, USP’s chief executive, Ronald Piervincenzi, Ph.D., told Fierce Pharma earlier this year.Generic drugs make up the vast majority of prescriptions in the U.S., with the FDA in 2023 estimating that the rate stood at 91%. As the threat of pharmaceutical tariffs has intensified, copycat medicine heavyweights like Aurobindo, Celltrion and Hikma recently pledged investments ranging from $250 million to $1 billion to bolster their U.S. presence.Thursday's update offers more clarity on the subject of tariffs for the industry as it has largely been stuck in a holding pattern for months while Trump has made repeated threats that his administration plans to tax drug imports.Earlier this month, the President hinted that sectoral tariffs on pharmaceuticals—informed by the results of the Section 232 probe—might start small before increasing over the span of a year or two to a rate of 150% or 250%.Still, the exact timing of those duties and how they will eventually be imposed is anything but certain. Most recently, Reuters reported in mid-August that Trump’s pharmaceutical tariff announcement was still “weeks away,” citing industry and government sources. Editor's note: This story has been updated with additional commentary from KPMG and EFPIA. More detail on the MFN tariff rate has also been added from a European Commission Q&A document.