Fact Check: Tariffs on pharmaceuticals will incentivize drug companies to move manufacturing to the U.S.

Fact Check: "Tariffs on pharmaceuticals will incentivize drug companies to move manufacturing to the U.S."

What We Know

The claim that tariffs on pharmaceuticals will incentivize drug companies to relocate manufacturing to the U.S. is rooted in the rationale provided by proponents of such tariffs, including former President Donald Trump. The argument is that imposing tariffs could create a financial incentive for drug manufacturers to establish operations domestically, thereby generating jobs and enhancing national security by reducing reliance on foreign suppliers (Johns Hopkins).

However, experts caution that the actual effects of implementing tariffs could be quite different. For instance, tariffs may lead to increased drug prices and potential shortages, as the U.S. has become increasingly reliant on imported pharmaceuticals, with imports rising significantly from $73 billion in 2014 to over $215 billion in 2024 (Johns Hopkins). The complexity of pharmaceutical manufacturing means that simply imposing tariffs may not be sufficient to encourage companies to relocate, especially given the significant investments required to build manufacturing facilities (Johns Hopkins).

Analysis

While the claim has a basis in the stated goals of tariff proponents, the evidence suggests a more nuanced reality. The potential for tariffs to incentivize drug companies to move manufacturing to the U.S. is complicated by several factors:

Economic Viability: The costs associated with relocating manufacturing operations to the U.S. are substantial. Experts indicate that the infrastructure and investment required to produce complex pharmaceuticals domestically could take years to establish (Johns Hopkins). For example, Novo Nordisk's planned facility in North Carolina will not be operational until 2029, illustrating the long timeline involved in such transitions (Johns Hopkins).
Market Dynamics: The pharmaceutical market is characterized by monopolistic pricing for branded drugs, which already account for a significant portion of U.S. drug spending. Tariffs could exacerbate this issue by increasing prices further, potentially leading to a situation where drugmakers choose to absorb the tariff costs rather than relocate (Johns Hopkins). This suggests that while tariffs might theoretically incentivize relocation, the immediate financial pressures may lead companies to prioritize maintaining market share over shifting production.
Quality and Supply Concerns: For generic drugs, which are primarily produced in countries like India and China, the feasibility of relocating manufacturing to the U.S. is even less likely. The lower profit margins and higher production costs in the U.S. could lead to quality issues or supply disruptions, as manufacturers may opt to cut costs rather than relocate (Johns Hopkins). This raises concerns about the overall impact of tariffs on drug availability and quality (Johns Hopkins).
Alternative Strategies: Experts argue that tariffs are a "blunt instrument" for achieving the goal of increasing domestic pharmaceutical manufacturing. Other strategies, such as tax incentives, subsidies, and workforce development, may be more effective in encouraging companies to establish operations in the U.S. (Johns Hopkins).

Conclusion

The claim that tariffs on pharmaceuticals will incentivize drug companies to move manufacturing to the U.S. is Partially True. While there is a theoretical basis for the assertion, the practical realities of the pharmaceutical industry suggest that the implementation of tariffs may not lead to the desired outcomes. Instead, tariffs could result in higher drug prices and shortages without significantly increasing domestic manufacturing. The complexities of the market and the substantial investments required for relocation further complicate the situation, indicating that a multifaceted approach may be necessary to effectively address the challenges in the pharmaceutical sector.

Fact Check: Tariffs on pharmaceuticals will incentivize drug companies to move manufacturing to the U.S.