The Year of the Tariff: Pharmaceutical Supply Chain Reimagined in 2025

The year 2025 was defined by escalating global trade tensions that fundamentally reshaped the pharmaceutical supply chain, forcing major companies to commit billions to domestic manufacturing to avoid crippling import tariffs (Infographic - article continues below).

What was the immediate aftershock, and what major investment pledges followed?

The year opened with immediate policy shifts targeting trade partners. On February 1, the Trump Administration announced 25% additional tariffs on imports from Canada and Mexico, and a 10% tariff on imports from China, citing illegal immigration and the flow of drugs like fentanyl as a "national emergency." While the tariffs against Canada and Mexico were paused for 30 days starting February 3 to allow for negotiations, China quickly retaliated with its own tariffs against the US.

The industry immediately voiced concerns about the consequences, fearing that relying on internationally sourced raw materials and critical medications could lead to "surging" prices, supply disruptions, and reduced access to essential treatments. Analyses suggested US exports of key products like vaccines and toxins could face losses in the billions.

In response to the threat of steep tariffs, pharmaceutical companies initiated massive investment commitments aimed at building out domestic capacity. On February 26, global manufacturer Eli Lilly and Company announced plans for four new US manufacturing sites intended to bolster small-molecule chemical synthesis and extend its global parenteral manufacturing network. This announcement meant Lilly’s total US capital expansion commitments since 2020 exceeded $50 billion. Weeks later, in mid-March, Merck offered another sign of accelerating reshoring efforts by unveiling a new facility to increase vaccine production capacity.

How did rising uncertainty lead to formal investigations by the US government?

As spring progressed, the administration continued to introduce broader tariffs. On March 27, new tariffs included a 25% tax on auto imports, a 20% import tax on China, and 25% tariffs on steel and aluminum. Earlier, on March 26, the Biotechnology Innovation Organization (BIO) released a survey showing that 90% of US biotech companies rely on imported components for at least half of their FDA-approved products, anticipating that European Union (EU) tariffs could lead to surging manufacturing costs and force roughly half of companies to delay regulatory filings.

April brought significant volatility. After President Trump announced a 10% baseline tariff on imported goods—sometimes referred to as "Liberation Day" tariffs—on April 9, reciprocal taxes were levied on various countries, only to be followed by a 90-day pause later that same day, causing temporary stock market disruption.

The threat against the pharmaceutical sector formalized on April 14 when the US Department of Commerce initiated a national security-driven investigation into imported pharmaceuticals, APIs, and their derivatives. Commerce Secretary Howard Lutnick indicated that a tariff model would soon be implemented for pharmaceuticals to encourage reshoring. This led to a surge of exports from Ireland to the US in February 2025, suggesting the US industry was attempting to stockpile pharmaceuticals.

By July, international trade experts confirmed that "sectoral tariffs" under Section 232 were proceeding on an accelerated timeline, with decisions expected as early as August 1. Threats of high rates persisted; President Trump suggested pharmaceuticals could be tariffed at a "very high rate, like 200%." Experts noted a phased approach might be used, starting with a low tariff and gradually increasing it, reflecting the complexity of the pharmaceutical market and the significant capital investment needed for reshoring.

These severe tariff threats prompted massive corporate commitments. In late July, AstraZeneca announced a $50-billion investment, signaling confidence in its ability to domestically produce nearly all its drugs for the US market.

How did the industry adapt to trade threats, and what was the impact of the 100% ultimatum?

Throughout August, the industry demonstrated how it was actively adapting. A survey conducted by Pharmaceutical Technology and Biopharm International revealed that nearly half of respondents (49.4%) anticipated tariffs would significantly affect their operations or supply chains. In response, companies prioritized increasing investment in trade compliance (48.3%) and diversifying their supplier base (37.9%), aiming to balance domestic reshoring with supply chain flexibility.

Mid-August brought some clarity to international relations when the White House and the European Union finalized a trade deal that set a 15% cap on pharmaceutical imports from the EU.

However, the most forceful policy move of the year came in late September. On September 25, President Trump announced a new trade policy imposing a 100% tariff on all imported branded or patented pharmaceutical products, effective October 1, 2025. Crucially, this tariff could be avoided if a company had initiated the construction of a manufacturing facility within the US. This "invest-or-tariff" ultimatum was supported by regulatory changes, as the FDA had launched its PreCheck initiative on September 3 to streamline the approval process for new manufacturing sites in the US.

The policy shift forced companies to recognize that tariffs were driving up costs for raw materials, APIs, and finished drugs, leading to increased operational expenses and squeezing profit margins, which often resulted in reduced spending on research and development. Generic drug manufacturers, in particular, faced acute pressure due to thin margins and static reimbursement rates, risking drug shortages if they were forced to exit the US market.

What was the long-term pivot in the pharmaceutical supply chain strategy?

By November, industry analysis confirmed that the primary response to tariffs was the reshoring of manufacturing to domestic markets, leading to new investments and supply chain localization. This trend toward onshoring was generating unexpected benefits, including improved quality control, reduced miscommunication, and less reiterated work, despite potentially higher initial costs compared to outsourcing to Eastern markets.

Ultimately, the pharmaceutical industry called for stable, predictable trade policies that would eliminate tariffs on critical inputs like APIs and excipients, coupled with robust government support for innovation and R&D. Faced with perpetual policy uncertainty, the industry prioritized resilience and security, viewing diversification, inventory optimization, and enhanced operational efficiency as necessary strategies to strengthen medicine supply security for the future.