US President Donald Trump last week issued a high-stakes ultimatum to the global pharmaceutical industry. He announced that generic drug manufacturers exporting to the United States would have two years to shift production to the US or face import tariffs of up to 200%.
The proposal is part of the Trump administration's broader pharmaceutical trade strategy, which seeks to extend a national security umbrella across the entire prescription drug supply chain—from high-cost patented biologics to everyday generic medicines. While the proposed tariffs would apply to all generic drug exporters, Indian pharmaceutical companies appear particularly vulnerable as they are the largest supplier of generic medicines to the US market.
What was announced and what is the timeline?
On July 21, Trump posted on Truth Social that generic drug exporters would be given two years to shift their manufacturing operations to the US. Failure to do so would draw a steep ladder of punitive tariffs so as to compel manufacturers to reshore production.
Under the proposed framework, generic medicines would continue to enter the US market duty-free until July 31, 2028. Beginning August 1, 2028, imports would attract a 100% tariff for one year. Thereafter, from August 1, 2029, the tariff would rise to 200% for manufacturers that have not established production facilities in the United States.
The two-year window is intended to give pharmaceutical companies time to build manufacturing capacity in the US, secure Food and Drug Administration (FDA) approvals, and transition production lines to American soil.
Why is India likely to be impacted the most?
According to data collated by the Global Trade Research Initiative (GTRI), India exported pharmaceuticals worth US$25.8 billion worldwide in 2025, of which US$9.7 billion, or 37.7%, went to the US, making America India's largest pharmaceutical export market.
Indian companies supply 47% of all generic prescriptions dispensed in the US, making India the country's largest source of affordable generic medicines. However, because generics are sold at very low prices, India's share of the value of US generic imports is estimated at only 30%, well below its share of prescriptions. India also led US pharmaceutical imports by country in 2025, accounting for US$13.39 billion, or 18.44%, of total imports.
With India accounting for the largest share of pharmaceutical imports into the US, the proposed tariffs are likely to hit the sector the hardest, as relocating manufacturing facilities to the US may not be feasible for most exporters. While some large Indian drug makers have established a presence in the US, the transition would be particularly challenging for smaller companies.
Several leading Indian drug makers already manufacture in the US. Sun Pharmaceutical Industries, Zydus Lifesciences, Lupin, Aurobindo Pharma, Cipla and Dr Reddy's Laboratories operate FDA-approved manufacturing facilities there. Cipla is expanding production at plants in Massachusetts and New York, while Dr Reddy's Laboratories has indicated that it is willing to increase US manufacturing if it makes commercial sense. Sun Pharma, by contrast, has said its existing US manufacturing footprint is sufficient and that it has no immediate expansion plans.
US Ambassador Sergio Gor had earlier said, "We import close to 40% of our generics from India. There's a reason the United States does that. It is because we trust India. These are critical, literally lifesaving ingredients that are needed in the United States."
How are Indian industry leaders and trade bodies reacting?
Relocating large-scale generic drug production to the US will be difficult, according to Indian industry experts. Ajay Srivastava, founder of GTRI, said generic medicines operate on extremely thin margins and depend on global supply chains, especially for active pharmaceutical ingredients (APIs), many of which continue to come from India and China. Building a fully domestic US supply chain would require substantial investment and almost certainly increase medicine prices.
Pharma exporters said shifting manufacturing to the US is not a viable option. Namit Joshi, Chairman of the Pharmaceutical Export Promotion Council of India (Pharmexcil), said, "Shifting the entire generics manufacturing ecosystem from India to the United States remains a distant prospect. The investments currently being pledged in the US are concentrated primarily in branded and patented drugs, not generics."
According to Pharmexcil, generic medicines account for approximately 90% of all US prescriptions, yet contribute only around 13% of total prescription drug spending by value.
Industry representatives noted that even if generic drug manufacturing were established domestically in the US, active pharmaceutical ingredients (APIs) would still need to be imported, as America lacks sufficient API manufacturing capacity. For these reasons, a full-scale reshoring of the generic pharmaceutical ecosystem to the US is unlikely to be achieved within two years.
They also flagged challenges related to labour costs, compliance burdens and the lack of a supporting ecosystem. "It's almost impossible to manufacture in the US, as there are no APIs, raw materials or packaging materials being produced there. Labour costs are almost 10-15 times higher, so it may be good to threaten the world, but practically it is almost impossible," said Vijay Shah, Managing Director of Stallion Laboratories, an exporter to the US.
How did the market react?
Following Trump's announcement, Indian pharmaceutical stocks fell sharply in early trade, with the Nifty Pharma index declining nearly 2% as investors weighed the potential impact of tariffs that could eventually rise to 200%.Shares of Sun Pharmaceutical Industries, Cipla, Dr Reddy's Laboratories, Lupin and Aurobindo Pharma were among the biggest losers in early trade. Aurobindo Pharma fell 3.48% to S1,525.50, while Sun Pharma declined 0.95% on the BSE. Cipla and Lupin both dropped about 2.5%, while Dr Reddy's Laboratories slipped more than 1%. Shares of Zydus Lifesciences, Alkem Laboratories and Torrent Pharmaceuticals also declined by up to 2%.
What could be the bigger challenge for India?
According to GTRI, India's pharmaceutical industry should prepare for a bigger strategic risk than US tariffs: dependence on China. About 70% of the chemical-based active pharmaceutical ingredients used by Indian drug makers and nearly 90% of biologic inputs are sourced from China. Yet, until the 1990s, India was a leading producer of APIs.
GTRI warned that if Beijing were to restrict API exports while simultaneously expanding sales of higher-value finished medicines, India's pharmaceutical industry could face serious supply disruptions. India should therefore make rebuilding its API manufacturing base a national priority by expanding domestic production and reducing reliance on a single supplier.
At the same time, Indian pharmaceutical companies should reduce their dependence on the US market by expanding exports to Europe, Latin America, Africa and Asia.
Is this the first time?
This is not the first time the Trump administration has threatened tariffs on pharmaceutical imports. In April this year, Trump announced plans to impose a 100% ad valorem tariff on imports of patented pharmaceuticals and associated pharmaceutical ingredients, citing national security concerns.
In a presidential proclamation, Trump said the move was necessary to address the "threatened impairment of the national security" arising from dependence on imported medicines and pharmaceutical ingredients. The proclamation also directed the US Commerce Secretary and the Secretary of Health and Human Services to consult relevant stakeholders and submit a report within 90 days before implementation.
What do Indian exporters expect from the government?
With India and the US currently negotiating a bilateral trade agreement, pharma exporters expect the issue to be addressed during the talks. Harish K Jain, Director of Embiotic Laboratories, said, "India and the US share a long-standing partnership in ensuring access to safe, affordable and high-quality medicines. While we note the proposed tariff measures, we are hopeful that both governments will engage in constructive dialogue to protect patient interests, maintain resilient pharmaceutical supply chains and promote fair and mutually beneficial trade.”
