That’s the timeframe Trump has given manufacturers to bring production back to the US – or face massive tariffs.
The protectionist measure would be a wholesale game changer for the sector, which has been exempt from customs duties since a 1994 World Trade Organization accord primarily signed by developed countries.
Labs feel the heat
Trump “wants to keep the pressure on in maintaining tight timeframes,” says Stefan Schneider, an analyst with Vontobel.
The pressure comes on top of a project to cut medicine prices in the US to align them with the lowest rates elsewhere. Although that announcement was made in mid-May, uncertainty still hangs in the air regarding its implementation.
“The pharmaceutical industry takes this double threat seriously,” said Alexandre Regniault, a specialist in health law at Simmons & Simmons, in an interview with AFP, while adding that he regarded those pressures as a “negotiating tool.”
In the spring, in the face of these risks, large European pharmaceutical groups including Roche, Novartis and Sanofi, announced more than US$200 billion of additional investments in the US, which is the world’s largest drug market.
High rate, tight deadline ‘unrealistic’
For Adrien Chantraine, a pharmaceutical expert with Circle Strategy, Trump’s announcement remains, “at this stage, a political stance, clearly part of a larger trade showdown with the European Union.”
Yet, were it to materialise, “its dual effect (of tariffs and price reduction) would shake the sector’s economic engine.”
Chantraine warns that, today, nearly three quarters of global pharmaceutical profits accrue in the United States “and serve to fund global R&D.”
The industry considers the one-year deadline to relocate pharmaceutical production “unrealistic.”
“The investments recently announced by laboratories are actually part of industrial cycles lasting five years and more,” Chantraine points out.
“Moving production does not happen overnight – building a new factory alone takes years,” added the head of German company Merck KGaA, Belen Garijo, in an article in the Welt am Sonntag newspaper.
Schneider voices similar concerns.
“Moving production takes in many cases more than the 1-1.5 years – thus giving such a short period does not make much sense. For those companies that have extra capacity in the US can move production faster – but the FDA still needs to give a nod,” said Vontobel’s Schneider, referring to the US authority responsible for drug regulation.
As for the proposed tariff rate, 200%, “Americans would need to pay significantly higher drug prices – or simply not take these drugs,” he warned.
Ireland on front line, Swiss talking
The US is the largest export market for European pharmaceutical companies, with 38.2% of sales outside the European Union last year made there, generating a record trade surplus of €193.6 billion (US$225 billion), according to Eurostat data.
Ireland’s drugs companies, which employ some 45,000 people, account for a large share of that surplus. The sector also accounted for nearly half of the country’s exports last year, or 100 billion euros, up 30 percent on the previous year.
Large laboratories, including US ones, have hosted their patents there to benefit from a 15 percent tax on large corporations, compared to a rate of 21 percent in the United States.
“A tariff of anything close to 200 percent for any product would all but kill cross border trade in that product,” Dan O’Brien, chief economist with the Dublin-based IIEA think tank, told AFP.
Switzerland is also a major player in the sector and “is still in talks with the US administration,” the country’s IPH pharma association said Wednesday.
Irish counterpart Ibec, which represents the biopharma and chemical sectors, said it had no comment.