Generic Drug Tariff Threat: Implications for Indian Pharma and Global Supply Chains

Generic Drug Tariff Threat Latest News

• US President Donald Trump announced recently, that tariffs on generic drugs will be raised to 100% after two years and to 200% thereafter, aimed at “reshoring” generic pharmaceutical production to the US. 
• He warned that companies choosing not to build plants in the US would be “penalised.”

Context: A Pattern of Tariff Threats

• This is not Trump’s first such threat on medicines:
  • April 2, 2026: Announced tariffs of up to 100% on specified branded medicines, set to start July 31, under the Section 232 national security framework.
  • September 25, 2025: Announced plans for a 100% tariff on imported branded and patented medicines.
• Neither earlier proposal has been implemented. 
• Notably, actual tariffs on drugs have been exempted in most tariff instruments used by the Trump administration so far — including those under the International Emergency Economic Powers Act, Section 122 of the 1974 Trade Act, and Section 232 of the Trade Expansion Act of 1962.
• Experts believe these threats are primarily designed to pressure global pharma giants into boosting US investments, rather than to actually raise tariffs — which could trigger domestic backlash, especially close to US midterm elections.

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Why This Matters for India

• The US is India’s largest pharmaceutical export market, accounting for almost 40% of India’s pharma exports.
• Around 90% of India’s pharmaceutical exports to the US are generic medicines.
• In 2025, India exported $9.7 billion worth of pharmaceuticals to the US.
• The US imported $213 billion worth of pharmaceutical products in 2025 overall, including $94.1 billion in finished medicines sold in retail packs — the category covering generics.

Indian Pharma’s Response: Rising US Investment

• Tariff-related uncertainty appears to be driving Indian pharma companies to secure US market access through investment:
  • Sun Pharmaceutical Industries (India’s largest pharma company) announced the acquisition of US-listed Organon & Co. for $11.8 billion — the largest overseas acquisition by an Indian pharmaceutical company to date.
  • As per a report, April 2026 recorded 103 M&A transactions worth $18.7 billion — the highest monthly deal value since May 2022, driven significantly by the Sun Pharma-Organon deal.
• Outbound investment trend (Commerce Ministry data, Lok Sabha reply):
  • FY26: $4.08 billion
  • FY25: $3.44 billion
  • FY24: $2.44 billion
  • This year’s outbound pharma investment already exceeds the combined total of the previous four years.
• Beyond pharma: India’s steel sector is also increasing US investment — JSW Steel announced $500 million in plans for Ohio and Texas.

Existing US Manufacturing Presence

• According to the Global Trade Research Initiative (GTRI), several major Indian drugmakers already operate US-based, FDA-approved manufacturing facilities:
  • Sun Pharma, Zydus Lifesciences, Lupin, Aurobindo Pharma, Cipla, and Dr Reddy’s Laboratories;
  • Cipla is expanding production at plants in Massachusetts and New York;
  • Dr Reddy’s has signalled willingness to increase US manufacturing if commercially viable.

Why Full Relocation Is Unlikely

• GTRI cautions that large-scale relocation of generic drug production to the US faces structural hurdles:
  • Generic medicines operate on extremely thin margins.
  • Production depends on global supply chains, especially for Active Pharmaceutical Ingredients (APIs), many sourced from India and China.
  • Building a fully domestic US supply chain would require substantial investment and would almost certainly raise medicine prices in the US.

Conclusion

• While Trump’s 200% tariff threat has not yet materialised into policy, it is already reshaping Indian pharma’s strategic calculus — accelerating outbound investment and US-based manufacturing expansion as a hedge against future trade uncertainty. 
• However, the deep cost and supply-chain advantages of Indian generic manufacturing make a full reshoring of production to the US economically implausible in the near term.

Source: IE | TH