Donald Trump’s latest salvo on trade threatens a 200 percent tariff on generic medicines. The President has declared that the US’s import duty for such off-patent drugs, currently at zero, would be increased in phases over three years beginning August 2028—rising to 100 percent initially and doubling to 200 percent within a year. The stated objective is to compel generic drug manufacturers to set up production in the US, hence the transition period. The Trump administration has already imposed a 100 percent tariff on imported branded and patented medicines as well as key pharmaceutical ingredients under Section 232 of the US Trade Expansion Act of 1962.
The latest announcement would concern a large section of Indian drug manufacturers who derive 40-50 percent of their revenues from the US market, where they account for almost a fifth of pharmaceutical imports and a dominant share in generics. Covering nearly 47 percent of all generic prescription drugs in the US, Indian companies are the largest source of affordable medicines for American consumers. This dependence may provide some cushion, as manufacturers could pass on a part of the tariff burden across the value chain. Trump’s goal of making pharma companies shift their manufacturing to the US would be commercially unviable for most because of the significantly higher labour and compliance costs. Labour costs in the US are estimated to be 10-15 times those in India, making relocation an expensive proposition. By value, generics contribute only about 13 percent of the total prescription drug spending in the US.
Many large Indian companies already have manufacturing and distribution operations in the US, which would help mitigate the impact of higher tariffs. Another source of relief is the extended implementation timeline. The industry will hope for a trade agreement or policy reversal to soften the impact in the interim, particularly since Trump’s current term runs until January 2029. Despite these possible escape hatches, Trump’s proposal is likely to disrupt an industry that’s a key contributor to India’s export earnings. Like in several other sectors, pharma companies should proactively work with the government to diversify its export markets. The companies must also strengthen their presence in patented and specialty medicines to reduce dependence on low-margin generics.