This brief provides an overview of federal policy on imported pharmaceutical and medical commodities and examines the impacts of tariffs and the ‘Most Favored Nation’ (MFN) policy on relevant stakeholders.
On April 1, 2025, the US Department of Commerce launched an investigation of pharmaceutical-related imports under Section 232 of the Trade Expansion Act, a statute that permits the president to regulate imports on the basis of maintaining national security.[1] The imports subject to investigation include both finished pharmaceuticals and their active ingredients, known as unfinished goods. The Department of Commerce has 270 days to complete the investigation, at which point the president will have 90 days to act.[2] Although the Department of Commerce has yet to release its findings, the Trump Administration has indicated its intention to impose tariffs on imported pharmaceuticals and their derivatives. On August 5, President Trump told CNBC that he aims to initially impose a “small tariff” on pharmaceutical products, followed by 150% and 250% levies thereafter.
We want pharmaceuticals made in our country.
Between 2014 and 2024, US pharmaceutical imports rose dramatically from $73 billion to $215 billion.[4] Currently, the US outsources 78% of its solid oral generics and nearly 60% of injectable generics; for brand-name drugs, these figures are 50% and 55%, respectively. These percentages are higher for generics, which have significantly smaller margins than brand-name drugs. As a result, many generic drug manufacturers offshore production to markets like India, where manufacturing costs are lower.[5]
The tariff policy on pharmaceuticals aims to curb US reliance on foreign markets through the following mechanisms:
Incentivize domestic manufacturing — Historically, pharmaceuticals have generally been exempted from import taxation, providing lucrative incentives to offshore drug manufacturing.[6] Import tariffs eliminate these incentives, thereby promoting reshoring of drug manufacturing.
Minimize the trade deficit — In 2024, the trade deficit on pharmaceuticals (imports minus exports) was $139 billion.[7] The stated objective to encourage domestic drug manufacturing through tariffs would reduce this trade deficit.
Address pharmaceutical shortages — In Q1 of 2024, drug shortages reached an all-time high of 323, 70% of which were generic medications. US dependence on foreign markets to source generic drugs and their active ingredients, known as APIs, plays a role in facilitating supply chain disruptions.
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US consumers pay significantly more for brand-name pharmaceuticals, though generic drugs are less expensive than in other developed nations. In a comparative analysis of drug prices across 33 OECD countries and the US, Americans paid 2.78 times more for drugs (generic and brand-name) than their counterparts abroad. For brand-name drugs in particular, Americans paid 4.22 times more, while for generics, Americans paid 40% less, on average.[9]
The ‘Most Favored Nation Policy’ aims to address disparate drug pricing by employing mechanisms that bring US prices closer in line with those abroad. On May 12, 2025, President Trump set this policy in motion by issuing E.O. 14,297, which requires pharmaceutical manufacturers to lower prices to MFN levels or face financial penalties. The administration escalated this agenda on July 31, when the White House sent letters to 17 pharmaceutical manufacturers demanding they enact MFN pricing by September 29: AbbVie, Amgen, AstraZeneca, Boehringer Ingelheim, Bristol Myers Squibb, Eli Lilly, EMD Serono, Genentech, Gilead, GSK, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Pfizer, Regeneron, and Sanofi. The policy aims to accomplish the following goals:
Increase economic access to pharmaceuticals — In 2024, 21% of American adults did not fill their prescription due to affordability.[10] If pharmaceutical prices approach MFN prices, fewer Americans would need to forgo filling their prescriptions due to cost, resulting in more widespread accessibility.
Regulate pricing power of pharmaceutical industry — Historically, the federal government has permitted drugs to be priced in accordance with market forces. Given the high-risk nature of drug manufacturing, this mechanism has been viewed as crucial for encouraging pharmaceutical R&D in the US. The MFN policy would contradict this status quo by enhancing governmental oversight of drug pricing.
Pharmaceutical companies invest an average of $3 billion over the course of the drug development process, which lasts approximately twelve years. The majority of these drugs (80-90%) never reach the market. Given the high-risk nature of pharmaceutical development, drugs that do reach the market generate significant returns until their patents expire. When a drug’s patent expires, new entrants enter the market, resulting in a drastic decline in price.
The high payoff when drugs come to market serves as a mechanism for encouraging drug development in the US. In 2024, the US approved 50 new drugs,[11] while European nations—which generally maintain stricter regulations on drug pricing—cumulatively brought 46 drugs to market.[12] If US drug manufacturers are required to comply with MFN pricing during the patent stage, analysts project the US may experience a decline in pharmaceutical investment.
To minimize potential losses, pharmaceutical companies may raise prices abroad to increase MFN levels for specific drugs. Eli Lilly has already adopted this strategy, raising the price of its diabetes and obesity medication, Mounjaro, from $165 to $447 in the UK. While the NHS announced that post-negotiation prices will remain the same, MFN levels are projected to rise.[13]
In response to the tariff policy, pharmaceutical companies have already begun reshoring manufacturing to the US. Many of these companies, including Roche, Amgen, Biogen, and Johnson & Johnson, have invested in North Carolina-based plants, positioning the state as a significant stakeholder in domestic manufacturing. Johnson & Johnson pledges to invest $55 billion in US manufacturing over the next four years, $2 billion of which will finance a new biologics manufacturing facility in Wilson, NC, that will add 5,000 new jobs. However, the majority of these investments are concentrated in brand-name markets, suggesting that tariffs may have limited impact on generic manufacturers who operate on narrow margins.
Since the Section 232 investigation was announced in April 2025, pharmaceutical manufacturers have pledged nearly $283 billion in U.S. manufacturing investments. Table 1 details these commitments by company and announcement date.
| Company | Announcement Date | Investment Amount |
|---|---|---|
Johnson & Johnson |
Mar 20, 2025 |
$55.0B |