PwC’s US Tariff Industry Analysis – Pharmaceutical, Life Science, and Medical Device

In brief

What happened?

Since taking office on January 20, President Trump has introduced several policies and executive orders. On his first day in office, he issued the America First Trade Policy, which launched an investigation into unfair trade practices, expected to conclude on April 1. A key component of this investigation, "Unfair and Unbalanced Trade," targets countries with significant annual trade deficits in goods, potentially subjecting them to country-specific tariffs. This includes several European Union nations (e.g., Germany, Ireland, and Italy), Asian jurisdictions (e.g., Vietnam, Japan, and Taiwan), and other global trade partners. A review of unfair trade practices by other countries and a consultation with respect to the United States-Mexico-Canada Agreement (USMCA) also are key components of the investigation.

Additionally, on February 13, President Trump introduced the Fair and Reciprocal Plan, designed to evaluate and impose reciprocal tariffs on countries that enforce higher duties/tariffs on US goods, including through a value-added tax or other non-tariff barriers. The European Union, India, and Japan have been identified as potential targets due to their tariff policies on American products. In addition, at the House GOP Issues Conference in Miami on January 27, 2025, and then again during a press conference in Palm Beach on February 18, 2025, President Trump announced plans to impose 25% tariffs on imported pharmaceuticals, in addition to semiconductors and automobiles.

Both the America First Trade Policy and the Fair and Reciprocal Plan are expected to have their investigations completed by April 1 with potential new tariffs as soon as April 2. 

Why is it relevant?

Importers and purchasers across all sectors, including the Pharmaceutical, Life Science, and Medical Device industry, must assess the impacts of these new policies on a go-forward basis. In PwC's US Tariff Industry Analysis, the data reflects that the total tariff measures could increase from $0.5 billion a year to nearly $63 billion a year for the Pharmaceutical, Life Science, and Medical Device industry, although that figure does not take into account countermeasures that trading partners may impose, or behavioral adjustments that companies may make, in reaction to US policy changes. In addition, if pharmaceutical tariffs of 25% are imposed on this sector, tariff revenues could increase by approximately $76 billion.

The industry could face immediate adverse impacts given its heavy reliance on foreign countries for raw materials and manufacturing. Specifically, impact could include margin erosion, higher drug prices for US consumers, and supply chain disruption. While the industry has historically benefitted from predominantly duty-free and low duty rates, the Trump administration has signaled a higher probability that increased tariffs will be imposed due to its desire to increase production in the United States.

Action to consider

As tariff rates continue to evolve, it is crucial for US multinational corporations to assess the impact of these trade policies on their business operations and supply chains.

Each multinational corporation, including those not currently subject to tariffs, should assess the pre/post impact of the tariffs on its earnings per share and overall shareholder returns. Focusing the impact assessment at operating profit potentially could create a drag on earnings per share based on the implication of corrective actions on the statutory model. It is crucial for companies to model the changes to have data-driven insights that inform strategic decisions moving forward. Specifically, companies within the Pharmaceutical, Life Science, and Medical Device industry could consider refreshing their operational strategy, including potential changes to a company’s overall supply chains, alternative materials sourcing strategies, manufacturing and intangible property (IP) locations, as well as alternative logistics solutions.

Pharmaceutical, Life Science, and Medical Device companies should evaluate the customs valuation of goods and consider strategies that could result in a lower basis of customs valuation upon which duties would be assessed, such as first sale for export and related transfer pricing strategies. In addition, companies should confirm they are declaring the correct country of origin for products being imported into the United States, as complex supply chains and conflicting rules of origin for pharmaceutical products across World Trade Organization countries may result in incorrect origin declarations and unnecessary duties.

For more details, read the full Tax Insight linked below.