NEW DELHIโWith President Donald Trumpโs proposed tariffs on Indian pharmaceuticals looming, millions of Americans could face higher medical bills as the cost of generic drugs rises. Indian Commerce Minister Piyush Goyal made an unscheduled visit to the US last week to negotiate a trade deal that would stave off the US-India tariffs set to take effect on April 2.
The tariffs, which are a retaliatory measure in response to Indiaโs tariffs on American goods, could significantly impact the US healthcare system. Nearly half of all generic medicines taken in the US come from India, making up nine out of 10 prescriptions. In 2022 alone, the savings from Indian generics amounted to a staggering $219 billion, according to a study by consulting firm IQVIA.
Without a trade deal, Trumpโs tariffs could make some Indian generics unviable, forcing companies to exit part of the market and exacerbating existing drug shortages, experts say. Tariffs could โworsen the demand-supply imbalances,โ and the uninsured and poor will be left counting the costs, says Dr. Melissa Barber, a drug-costing expert from Yale University.
The Potential Impact on US Healthcare
If the tariffs go into effect, several consequences could unfold:
- Higher Drug Costs: Generic drugs from India could become significantly more expensive, potentially forcing some companies to exit the US market.
- Drug Shortages: Existing shortages could worsen as Indian drugmakers face higher costs and reduced incentives to supply the US market.
- Healthcare System Strain: Increased costs for generic medications could strain an already burdened healthcare system.
Industry Responses
Indian pharmaceutical companies have expressed concerns about their ability to maintain current pricing structures under tariff pressure. Dilip Shanghvi, chairman of Sun Pharma, stated that tariffs โdo not justify relocating our manufacturing to the US,โ given the cost differences between Indian and American manufacturing.
US hospitals and generic drugmakers have also expressed concerns about the potential impact of tariffs on drug supplies and costs. The raw materials for 87% of drugs sold in the US are located outside the country, with China fulfilling around 40% of the global supply.
Economic Considerations
The pharmaceutical sector is Indiaโs largest industrial export, with annual exports to the US valued at approximately $12.7 billion. Any tariffs would significantly impact this critical sector.
Building new manufacturing facilities in the US to avoid tariffs is not a quick solution. Estimates suggest it could take five to ten years and cost up to $2 billion per facility.
Negotiations and Potential Solutions
Both countries have expressed a desire to reach a trade agreement, with Mark Linscott, former assistant US trade representative, suggesting that โneither country could afford a breakdown in pharma supply chains.โ
Possible solutions could include:
- India reducing tariffs on US pharmaceutical products
- The US exempting essential medicines from tariffs
- Both countries agreed to phased tariff reductions
Experts suggest that while short-term pain may be inevitable, both countries have strong incentives to reach a mutually beneficial agreement by the fall of this year. The USโs dependence on Indian generics and Indiaโs reliance on the US market create pressure for a negotiated solution.
The Importance of Indian Generics in the US
Indian pharmaceutical companies play a crucial role in the US healthcare system. They supply nearly half of all generic medicines used in the US, which is essential for keeping healthcare costs manageable. These drugs make up nine out of 10 prescriptions in the country, and in 2022 alone, they saved the US healthcare system $219 billion, according to a study by consulting firm IQVIA.
The potential tariffs could disrupt this critical supply chain, leading to higher costs and possible shortages of essential medications. This would disproportionately affect uninsured and low-income patients who rely on affordable generic drugs.
The Tariff Landscape
President Trumpโs proposed tariffs on Indian pharmaceuticals are part of an escalating trade dispute between the two countries. India has imposed tariffs on American goods, and Trump has responded with tariffs on Indian products, including pharmaceuticals. This tit-for-tat approach has raised concerns about the potential impact on global trade and healthcare.
Industry Responses and Challenges
Indian pharmaceutical companies have expressed significant concerns about the potential tariffs. Dilip Shanghvi, chairman of Sun Pharma, one of Indiaโs largest drugmakers, stated that tariffs โdo not justify relocating our manufacturing to the US,โ given the cost differences between Indian and American manufacturing. Manufacturing in India is at least three to four times cheaper than in the US, according to Sudarshan Jain of the Indian Pharmaceutical Alliance (IPA).
US hospitals and generic drugmakers have also expressed concerns about the potential impact of tariffs on drug supplies and costs. The raw materials for 87% of drugs sold in the US are located outside the country, with China fulfilling around 40% of the global supply. With tariffs on Chinese imports rising 20% since Trump took office, the cost of raw materials for drugs has already increased.
Economic Considerations and Challenges
The pharmaceutical sector is Indiaโs largest industrial export, with annual exports to the US valued at approximately $12.7 billion. Any tariffs would significantly impact this critical sector. India exports some $12.7 billion worth of drugs to the US annually, paying virtually no tax. US drugs coming into India, however, pay 10.91% in duties. This leaves a โtrade differentialโ of 10.9%. Any reciprocal tariffs by the US would increase the costs for both generic medicines and specialty drugs, according to GTRI.
Building new manufacturing facilities in the US to avoid tariffs is not a quick solution. Estimates suggest it could take five to ten years and cost up to $2 billion per facility. The tariff below could also be brutal for local pharma players in India. Indian firms, which primarily sell generic drugs, already work on thin margins and wonโt afford a steep tax outgo.
Negotiations and Potential Solutions
Both countries have expressed a desire to reach a trade agreement, with Mark Linscott, former assistant US trade representative, suggesting that โneither country could afford a breakdown in pharma supply chains.โ Possible solutions could include India reducing tariffs on US pharmaceutical products, the US exempting essential medicines from tariffs, or both countries agreeing to phased tariff reductions.
Experts suggest that while short-term pain may be inevitable, both countries have strong incentives to reach a mutually beneficial agreement by the fall of this year. The USโs dependence on Indian generics and Indiaโs reliance on the US market create pressure for a negotiated solution. However, both countriesโ complex trade relationship and political dynamics make the outcome uncertain.
The potential tariffs on Indian pharmaceuticals represent a significant moment in US-India trade relations with direct implications for American patients and healthcare costs. As negotiations continue, the outcome will determine whether millions of Americans continue to benefit from affordable generic medications or face increased healthcare burdens.
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