The US tariffs on India will be hard to accept.

 

With Donald Trump's retaliatory tariffs on India set to take effect next month, millions of Americans may need to prepare for higher medical bills. Last week, Indian Commerce Minister Piyush Goyal made an unexpected trip to the U.S. for discussions with officials in hopes of reaching a trade agreement.

This visit followed Trump's announcement that he would impose tariffs—government taxes on foreign imports—on India by April 2, in response to India's tariffs on American goods. Goyal aims to prevent tax increases on India's vital export industries, such as the pharmaceutical sector.

Nearly half of all generic medicines consumed in the U.S. come from India. These generic drugs, which are cheaper alternatives to brand-name medications, represent nine out of ten prescriptions in the U.S. This reliance on Indian generics saves the U.S. government billions in healthcare costs. In 2022 alone, the savings from Indian generics amounted to an astounding $219 billion (£169 billion), according to a study by consulting firm IQVIA.

Without a trade agreement, Trump's tariffs could render some Indian generics unprofitable, prompting companies to exit certain segments of the market and worsening existing drug shortages, according to experts. Dr. Melissa Barber, a drug pricing specialist from Yale University, warns that tariffs could "worsen the demand-supply imbalances," leaving uninsured and low-income individuals to bear the financial burden.

The consequences could be severe for people suffering from various health conditions. According to the IQVIA study, funded by the Indian Pharmaceutical Alliance (IPA), over 60% of prescriptions for hypertension and mental health issues in the U.S. are filled with Indian-made medications. Sertraline, the most prescribed antidepressant in the U.S., highlights America’s dependence on Indian supplies for essential drugs, many of which cost half as much as those from other countries.

Peter Maybarduk, a lawyer at Public Citizens, a consumer advocacy group, expressed concern, noting that one in four American patients already forgo medications due to high costs. Trump is reportedly facing pressure from U.S. hospitals and generic drug manufacturers over his tariffs on Chinese imports.

The raw materials for 87% of drugs sold in the U.S. come from overseas, primarily China, which accounts for around 40% of global supply. Since Trump took office, tariffs on Chinese imports have increased by 20%, driving up the costs of raw materials for pharmaceuticals.

Trump wants companies to shift manufacturing to the U.S. to avoid these tariffs. Major pharmaceutical companies like Pfizer and Eli Lilly, which sell brand-name and patented drugs, have expressed commitment to moving some manufacturing operations domestically. However, the economics for low-value drugs do not support this shift.

Dilip Shanghvi, chairman of India's largest drugmaker, Sun Pharma, recently remarked that his company sells pills for between $1 and $5 per bottle in the U.S. and that tariffs "do not justify relocating our manufacturing to the U.S." Sudarshan Jain of the IPA noted that "manufacturing in India is at least three to four times cheaper than in the U.S." Rapid relocation is nearly impossible, as constructing a new manufacturing facility can cost up to $2 billion and take five to ten years before becoming operational, according to the lobbying group PhRMA.

For local pharmaceutical companies in India, the impact of tariffs could be severe. The pharmaceutical sector is India's largest industrial export, according to GTRI, a trade research agency. India exports approximately $12.7 billion worth of drugs to the U.S. annually without paying significant taxes, while U.S. drugs entering India face a 10.91% duty. This results in a "trade differential" of 10.9%. Any retaliatory tariffs from the U.S. would increase costs for both generic and specialty drugs, according to GTRI, which identifies pharmaceuticals as one of the sectors most vulnerable to price hikes in the U.S. market.

Indian companies, which primarily sell generic drugs, operate on thin margins and may struggle to absorb substantial tariff increases. They already sell at much lower prices compared to competitors and have gained a dominant position in markets such as cardiovascular, mental health, dermatology, and women's health drugs in the world's largest pharmaceutical market. The finance head of a leading Indian drugmaker, who wished to remain anonymous, stated, "We can offset single-digit tariff hikes with cost cuts, but anything higher will have to be passed down to consumers."

North America is the largest revenue source for these companies, contributing about one-third of their earnings and profits. "It is the fastest-growing market and most crucial. Even if we increase our presence in other markets, it will not compensate for any losses in the U.S. market," the finance head added. Umang Vohra, CEO of India's third-largest drug firm, Cipla, recently emphasized the need to address tariffs.