Jeffrey A. Singer
The US and the European Union released details of their trade “framework agreement” yesterday. If the deal goes through, American patients can expect to pay more for pharmaceuticals. But it could have been much worse, as I wrote in April. At that time, President Trump threatened a 250 percent tariff on all imports from the EU.
About 40 percent of the finished pharmaceutical products that Americans consume are imported from the EU. About 47 percent of the active pharmaceutical ingredients (APIs) that US pharmaceutical manufacturers use are imported from foreign countries. The EU is America’s largest source of imported APIs, making up 26 percent. Pharmacies dispense approximately 91 percent of all prescriptions in the US as generics. About 90 percent of generic drugs rely on imported APIs.
Before the president’s April 2 “Liberation Day” tariff announcement, most APIs and finished pharmaceuticals imported from Europe were tariff-free. This was due to the World Trade Organization’s Agreement on Trade in Pharmaceutical Products. If Trump had stuck with his initial tariff threat of 250 percent on all imports from the EU, it would have significantly increased the prices that patients pay for medicines, either directly or indirectly (through higher insurance premiums as third-party payers cover many of them).
Under the framework agreement, American consumers will face a 15 percent tariff on all goods imported from the EU, including finished pharmaceutical products. However, the tariff on finished generic drugs and APIs will stay at zero.
Therefore, if the arrangements under the framework stay the same—and if the courts don’t declare Trump’s unilateral tariff edict unconstitutional—the effect on pharmaceutical prices won’t be as severe as it could have been. While patients won’t face the extreme price increases a 250 percent tariff would cause, some drug prices could still climb under the new framework.