One of President Donald Trump’s actions early on in his second term was his plan to impose tariffs on the countries he sees as threatening to U.S. interests.
According to a White House press release, these tariffs have been imposed to target “extraordinary threat posed by illegal aliens and drugs” from these countries, saying they constitute a “national emergency” for the U.S., though further details weren’t provided.
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This included a 25% tariff on Canada and Mexico, and a 10% tariff on China. Canada and Mexico had also announced retaliatory tariffs ever since. These tariffs have a potential impact on a number of industries, including the pharmaceutical and healthcare industries.
The pharma and healthcare industries are particularly impacted by the tariffs on China. According to Carlo Rizzuto, managing director of healthcare investment firm Versant Ventures: While tariffs could hinder the ability to access products that are in China, the more tangible challenge is that China is a huge center for manufacturing and contract research.
Raising manufacturing and R&D costs would lead to an increase in patient costs as well. It would also make it difficult to raise capital for early-stage healthcare companies.
According to Seeking Alpha analyst, Edmund Ingham, Johnson & Johnson and AstraZeneca are among the largest pharmaceutical manufacturers that would be affected, because they work closely with Chinese firms. They could also affect European pharma companies like Novo Nordisk, and Roche.
In addition, there are also medications that come into the U.S. from Canada and Mexico. Medications from Canada include HIV and AIDs medications, as well as diabetes medications, with states like Florida having proposed importing insulin and diabetes medication from Canada to reduce costs. Pain relievers and antibiotics comes from Mexico.
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“Tariffs on imports would increase the total cost of goods sold and reduce margins,” Seeking Alpha Analyst Stephen Ayers states, cautioning that these companies could potentially try to absorb these extra costs by passing them off to consumers—in turn raising drug and healthcare costs.
“While this may happen to some extent, increasing the product’s cost is likely to result in lower demand,” he said. However, another analyst and O’Neil trader has a more tempered take. “I do not expect to see a meaningful impact of higher tariffs on any Big Pharma company.” These established players, he argued, have “geographically diversified supply chains” that they can activate and adapt to mitigate impacts of the tariffs.