Trump Tariffs Could Drive Drug, Medical Device Prices Much Higher
Currently, President Trump has imposed tariffs of 25% on steel and 10% on aluminum imported from China. While right now, only a small portion of the Chinese steel sector is affected, expanding the taxes would affect manufacturers of more than 1,300 goods. This June, additional levies could be placed on raw drug ingredients, such as insulin, epinephrine and vaccines.
Trump Tariffs: Where Are We Now?
Generic drug manufacturers source most of their active ingredients from China and India. Right now, they are already cutting spending in a deflationary market. Higher manufacturing expenses resulting from high tariffs could inflate prescription prices and insurance premiums. In turn, this would force more generic manufacturers to close and thus increase the drug shortage problem in the United States.
Changing suppliers for drug companies is very hard and takes a long time to get approved. Therefore, in a competitive, deflationary industry where it is a race to the bottom, the impact could be significant.
Trump Tariffs: Current Status
Generic drugs make up more than 80% of the total pharmaceutical market, which has, up to now, slowed the trend of rapidly rising drug spending. But plummeting drug prices and company consolidations have impacted generic drug manufacturers. Indeed, several health systems such as Intermountain Healthcare, Ascension, SSM Health and Trinity Health, are planning to launch their own generic drug operation.
The leading generic drug producer, Teva Pharmaceuticals, is laying off more than a quarter of its workforce, about 14,000 employees. Moreover, they have closed half of their 80 manufacturing plants. Endo Pharmaceuticals has also cut half of its employee base as its generic drug division slashes its product portfolio.
Overall, the three biggest wholesale drug distributors, which have closely aligned with large retail pharmacies, control about 90% of the generic market.
Trump Tariffs: Outlook?
The generic drug and medical device industry is concerned that eventually companies could continue dropping products, which would increase the potential for shortages. Especially so if tariffs are increased and extended to more products.
The Advanced Medical Technology Association, representing medical device companies, is disappointed by the proposed tariffs. It could affect the health and well-being of patients.
In addition, the U.S. is also renegotiating the North American Free Trade Agreement (NAFTA). The Trump administration is pushing for 12 years of exclusivity for new biologics, which could cut off competitors. Reduced competition will raise prices and bring fewer generic drugs to market.
For example, currently, the FDA (Food and Drug Administration) has approved only nine generics and just three are now on the market. Long term, if this trend continues, it’s not a good sign for seniors and others on fixed budgets.