U.S., India Navigate Uncertainties Amidst Upcoming Pharma Tariffs

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Researched by Industrial Info Resources (Sugar Land, Texas)--In the dynamic landscape of trade tensions, the U.S. is likely to unveil another set of import duties. In an effort to reduce reliance on foreign nations for pharma products, foster fair trade, boost domestic production and encourage reshoring, the country is set to introduce import tariffs targeting the Pharmaceutical-Biotech Industry. After signaling for months through statements like 'major pharma tariffs coming soon' and pharma import investigations under Section 232, U.S. President Donald Trump recently hinted on a figure saying "a very, very high rate, like 200%." Although no formal announcements have been made, concerns regarding impending tariffs have been mounting globally. As the country gears up to these levy duties, India, a leading pharmaceutical drug exporter to the U.S., is expected to encounter major difficulties if tariffs are imposed.

Known as the "Pharmacy of the World," India currently ranks third by volume in pharmaceutical production. Pillared upon revolutionary reforms like the Indian Patents Act in 1970s and the Drug Policy of 1978, the Indian pharma industry has witnessed rapid expansion over time. Fueled by factors like low production costs, skilled personnel and sustained government support, the industry is experiencing steady growth with an anticipated worth of US$130 billion by 2030.

Over the years, the U.S. has been an important market for Indian drug makers. The 1984 Hatch-Waxman Act that streamlined generic drug approval in the U.S., created massive opportunities for Indian pharma companies to establish themselves in the U.S. market. Currently, India accounts for almost half (47%) of the generics consumed in the U.S. The U.S. also relies heavily on India due to efficient output costs and numerous U.S.-approved facilities. By 2024, around 750 Indian facilities were registered with the U.S. Food and Drug Adminstration, with 200 receiving consent for sterile injectable drugs and complex formulations.

As of now, India levies a 10% tariff on U.S. pharma imports, whereas the U.S. does not charge any duty on pharmaceutical imports from India. If tariffs are imposed, both countries are likely to feel the blow in their respective pharma supply chains. Given the deep mutual interdependence, a lot is at stake for both nations. Rising export costs could erode price competitiveness of Indian drug manufacturers in global markets, while straining already thin profit margins. Indian pharma companies operating in the U.S. that source raw materials from India may also encounter challenges. Despite the final manufacturing happening in the U.S., rising costs would steer Indian drug makers to relocate to other markets. On the other hand, the U.S. may also suffer drug shortages and high healthcare costs due to a decline in Indian exports. American pharma giants such as Merck & Co. Incorporated (Kenilworth, New Jersey) and Pfizer Incorporated (New York, New York), having their production units in India, may face diminished cost advantage while reimporting to the U.S.

Currently, Industrial Info Research (IIR) is tracking over 770 active capex projects worth about US$11 billion across India's Pharmaceutical Industry. About half (47%) of the total investment is geared at the production of Ingredients (like active pharmaceutical ingredients, excipients and other bulk drugs). Final formulations, including oral, topical parenteral and solid formulations, also make for 45% of the aggregate industry spending.

The majority of the investment (more than US$2 billion across 144 projects) is situated in Telangana. Gujarat and Karnataka also garner substantial investments with a project spend of over US$1 billion each.

While a 200% tariff will be a major concern for Indian producers, experts and experience with tariffs across other sectors garner hope that the actual duties, when announced, will be much milder. On the sidelines, India continues to hold discussions with the U.S. to finalize a bilateral trade agreement that would further help in easing tariff burdens. Companies on either side of the trade are adopting a wait-and-watch attitude for now, waiting for more clarity. There are significant amounts of interdependencies within the industry, highlighted by the fact that 42 operational pharma plants in the U.S. are directly owned by Indian companies, at the same time as 38 functional plants in India are owned directly by U.S. companies.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).