With the US government giving a 90-day breather on reciprocal tariffs, the domestic pharma sector is expecting complete exemption from tariffs in the near future on the lines of exclusions being given to a range of electronic products from the reciprocal tariffs recently. “Once the US got to know that it cannot impose stiff tariffs on electronic products due to high import dependence, it quickly exempted those items. It’s only a matter of time that the US government realises that its dependence on imported medicines is significant, and it will also fully exempt pharma sector from tariffs,” said head of a leading pharma association, on condition of anonymity.
Experts said that nearly 80% of the US pharma market constitute generics which are primarily imported from India (47% market share in US generics sales). It’s not a viable option for US companies to start manufacturing these drugs locally because their cost of production is going to be 30-40% higher. Moreover, it will take at least 4 years to reach that kind of capacity,” said the pharma association head quoted above.
“The US is a volumes game. The scale of domestic production has to reach a certain scale for their domestic pharma companies to build a sustainable business,” said a pharma analyst.
Even though Indian pharma players’ 30% of the export sales comes from the US, it’s difficult for them to absorb the additional “tariff cost”, and continue to sell their drugs in the US market. “It will become unviable for Indian companies to sell in the US at higher costs. There have been instances in the past where companies pulled out of certain segments due to weak profitability. There are other markets like the Europe and Latin America where the Indian companies have a better pricing power,” said the analyst quoted above.
Earlier, the Donald Trump administration excluded pharmaceutical sector from the reciprocal tariff move. However, a day later, Trump warned of “never seen before” tariffs on the pharma companies exporting drugs to the US.
“Pharma tariffs are going to come in at levels you haven’t really seen before. We are looking at pharmaceuticals as a separate category. We will be announcing that sometime in the near future, and not too distant future. It’s under review right now,” Trump had said.
Currently, exports of Indian drugs to the US attract zero tariffs, while the Indian tariffs range from zero to 7.5%, with most products attracting either nil or minimal levies.