Pharma development and manufacturing strategies that protect against government policy shifts and trade disputes
For US-based pharmaceuticals companies attempting to minimize the effects of tariffs, one thing has become crystal clear: very little is crystal clear.
A nerve-wracking example: in early August, US government leadership announced intentions to impose escalating tariffs on pharmaceuticals that, per reports, could reach 150% within 18 months and eventually climb as high as 250%. A key condition of avoiding these tariffs was achieving “most favored nation” pricing for US consumers, which would tie the costs of imported pharmaceuticals to the lowest prices paid in other developed countries.
While the initial proposed levies were far lower, the high operational and economic hurdles to the US obtaining most favored nation status made steep, stepwise tariff increases an all-too-possible prospect. And despite the commendable goal of saving American consumers money, the potential pecuniary consequences of triple-digit taxes could seriously impact US patients due to the outsized percentage of drugs produced abroad. While brand-name drugs are often produced by pharma companies and contract manufacturing organizations (CMOs) with facilities in several countries – including the US – generics manufacturers often have far less geographic versatility. And considering that over 90% of prescriptions filled in the US each year comprise generics, the idea of those drugs doubling or even tripling in price simply wasn’t tenable.
Luckily, cooler heads prevailed, with the US government’s initial fixed-price demands giving way to a more nuanced approach. Crisis averted…
… for about six weeks, at least. Late September brought the potential for 100% tariffs on imported brand-name drugs whose manufacturers do not produce drugs in the United States. Fortunately, several circumstances – such as a pre-arranged 15% tariff cap with the European Union and Japen, as well as assurances that pharma companies have opportunities to negotiate before the imposition of tariffs – combined to quell fears of a worst-case scenario price spike on life-saving therapies.
Still, other uncertainties remain. Evidenced by a sweeping, ongoing review of the national security effects of imported pharma products initiated in April 2025 by the US Department of Commerce’s Bureau of Industry and Security, we likely haven’t seen the last round of anxiety-inducing announcements.
With US tariffs seemingly in perpetual flux, pharma companies hoping to map out tariff mitigation strategies face winding paths with confusing crossroads. Along the way, everything from consistent API supply and packaging component procurement to manufacturing arrangements and logistics management stand to be impacted.
This article delves into the monetary challenges posed by today’s unpredictable pharmaceuticals supply chain, with an emphasis on both the unsteady tariffs landscape and shifting US government priorities. Only by understanding the potential ramifications on trade patterns, drug prices and logistics can pharma companies develop and hone the tools necessary to mitigate tariff costs while remaining compliant with diverse regional regulations.
Unintended Consequences: The Tariff Trap
From a manufacturing and logistics perspective, the global pharmaceuticals landscape is among the world’s most complicated and rules-dependent. Intricately interconnected and strictly regulated, drug development and production may mean, for example, sourcing raw materials from India, manufacturing in China, packaging in western Europe and distribution throughout the United States. This painstaking process combines expertise and manpower from several continents across a broad range of complementary disciplines – from research, manufacturing and clinical trial organization to logistics, customs navigation and regulation compliance.
Any industry so internationally intertwined thrives in predictability and, on the other hand, can struggle mightily in uncertainty. Weaknesses to any one link can make the overall supply chain less resilient and, despite understandable underlying intentions, protectionary actions such as tariffs can fray the ties that bind the global pharmaceuticals sector.
First and foremost, actions have reactions – and tariff actions are no exception. In addition to making goods sourcing more expensive, the overall cost of doing business can climb further via tit-for-tat reciprocal tariffs. Under such antagonistic conditions, the economics can become unattractive at best, impossible at worst.
Another issue with arbitrary pharma tariffs is that they are… well, arbitrary. In addition to achieving most favored nation status, of course, another rationale behind imposing tariffs is to encourage more domestic drug manufacturing. But while some US-based pharma companies may have the resources to support such endeavors, onshoring is seldom as simple as packing up and moving back home. For one, sufficient infrastructure and local expertise must exist to make repatriation truly viable. Payroll presents an additional concern, as skilled personnel in the US typically demand salaries far higher than workers elsewhere – especially those in developing nations.
Finally, the exceptionally necessary service our sector provides renders any significant disruptions completely unacceptable. Consumers can do without a food item or personal care product whose price suddenly spikes; the same is not true for patients requiring life-saving pharmaceuticals and the corresponding medical devices and packaging components that deliver them. With failure simply not an option, pharma companies must employ every tool in their toolkit to keep the pharma supply chain as fine-tuned a machine as possible.
Tools of the Trade Disputes
Fortunately, pharma companies can employ several handy, powerful tools to reduce their tariff exposure. One such solution is taking advantage of provisions that allow certain products to be imported either tax-free or at substantially reduced tariffs.
Some of these rules are quite current, others decades old. In the former category are two annexes to the Harmonized Tariff Schedule (HTS). Initially announced in April 2025 to address country-specific trade deficits, Annex I comprised customized reciprocal tariffs on a broad range of common US trading partners. Most were in the 15% range; others, such as India, had imported goods excised at 25%. Few were completely exempt, the European Union being a prominent exception.
While exemptions were made for pharmaceuticals, the industry’s complexity created a foggy outlook. Were all pharmaceutical products exempt? And were they exempt from everywhere? What about components like packaging, delivery devices, and other essentials?
Enter Annex II, an attempt to clarify via revised per-country tariffs and, more helpfully, categorization of precisely what materials were exempted. Without meandering too far into the labyrinthian US tax code, for pharma’s purposes the focal point was 9903.01.32, which provides exemptions for a wide range of pharma and pharma-adjacent products. The Executive Order made a broad swath of APIs, excipients, placebos, packaging materials, device components and more duty-free when imported from nearly any country.
However, one prominent nation was excluded from the Annex II tariff relief: China, the world’s second-largest economy and a pivotal player in the global pharma sector. This was understandably deemed problematic by the industry at large since, among other figures, China controls some 80% of the global generic API supply chain.
Luckily, certain legacy policies also pack tariff-mitigating punches. Here, clever categorization can be key.
For example, the US has historically made tariff exemptions for prototype provisions; understandably, this longstanding and largely neglected stipulation is receiving revived attention as the tariff horizon remains cloudy. Many of these prototype provisions were devised two decades ago, part of an effort to persuade US drug manufacturers and clinical researchers to reshore certain operations. While diverse and often complex, prototype provisions can be utilized to reduce or even eliminate tariffs on goods associated with testing, evaluation and development.
In other words, if a product isn’t commercialized, its importers can sidestep not only tariffs imposed by the US, but also reciprocal ones. Examples include APIs for development and investigational phases, formulations applied to stability or toxicology studies, and bulk intermediates for various pre-commercial needs. As tariff fears have worsened, provisions once deemed redundant have resurfaced as clear, convenient supply chain lanes.
Foreign Trade Zones (FTZs) are another highly effective tariff mitigation measure. Secured areas considered legally outside of US territory – think an airport duty-free shop, only for pharma manufacturing – FTZs provide a safe space for various manufacturing activities. While FDA jurisdiction still applies – meaning, for example, that requirements for Investigational New Drugs must still be met upon release to the US marketplace – merchandise in FTZs may be stored, packaged, and manufactured without the payment of duties until those items leave the zone and officially enter the US commerce landscape. Notably, if the merchandise never enters this landscape, no tariffs are paid whatsoever.
FTZs bring several benefits. For one, such zones allow drug products to be “imported” prior to FDA approval, allowing for assembly, storage and other necessary efforts. Once a drug product gains approval, it can then enter domestic markets expediently – a helpful head start especially for pharmaceuticals with limited shelf life. In addition, duties are excised only when (or if) a finished product enters the US marketplace, meaning tariff exposure can either be deferred or, in the case of immediate exportation directly from an FTZ, avoided altogether.
FTZs also give pharma companies an “either/or” choice that, depending on the situation, can significantly reduce a product’s tariff exposure. Upon approval from the US Foreign-Trade Zones Board, companies bringing merchandise into an FTZ can choose to pay either the duty rates applicable to various complementary materials, or the duty rate for the finished product. Naturally, that choice is made obvious by a simple cost comparison.
Tarriff-Mitigating Teammates
Today’s tenuous tariffs landscape brings an unprecedented need to engage with partners whose expertise spans a broad spectrum of the pharma value chain – everything from development-stage support, clinical trials implementation and manufacturing scale-up to device assembly, packaging services and logistics oversight. To accommodate pharma customers both in the US and abroad, such outsourcing organizations are immersed not only in tariff optimization, but also regional regulations and individual nations’ customs rules.
Trade compliance professionals, customs brokers, regulatory attorneys, tariff classification specialists. To navigate today’s tumultuous trade waters, prominent contract development & manufacturing organizations (CDMOs) have some of the sharpest tariff-mitigation tools of all: the right people.
They also have the right resources. Whether serving as an Importer of Record for clinical trial materials or leveraging US facility capacity to help a pharma company “onshore via outsourcing,” CDMOs can help tariff threats go from menacing to manageable. Always, engaging such experts from the inception of tariff mitigation efforts best ensures pharma companies are harnessing the most effective tools in their toolkits.
The Tariff Mitigation Toolkit – by Zach Rupert, Director of Global Specialty Logistic PCI Pharma Services. | As seen in Pharmaceutical Outsourcing | November 2025.
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