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Investors shrugged off US President Donald Trump’s threat to impose a 200 per cent tariff on pharmaceuticals, betting that the levy is unlikely to be implemented.
Shares in most big European drugmakers traded down on Wednesday but then recovered, with many trading flat or slightly up. Shareholders in India’s huge drugmaking industry, which supplies the US with about 40 per cent of generic drugs, also largely glossed over the threat. The S&P BSE Healthcare index, which tracks Indian pharma stocks, was little changed at the close of trading on Wednesday.
Emily Field, an analyst at Barclays, said investors were brushing off the latest pharma tariff threat and dismissing it as “rhetoric”.
“No one is taking it seriously,” she said. “The idea of the Taco trade [Trump always chickens out] still prevails.”
The 200 per cent tariff “looks impractical” and “highly inflationary”, said a Mumbai-based pharma industry analyst. “I don’t think too many people have taken [it] very seriously.”
The US was the destination for almost a third of India’s nearly $30bn of pharma exports in the financial year ending in March, according to Indian government data.
Field said the lack of market reaction was perhaps an indication of optimism about progress in negotiations over drug pricing in the US.
The administration has so far held off imposing tariffs on the sector. But Trump has repeatedly threatened to do so, and the US commerce department has conducted a probe of the national security implications of relying on foreign production of medicines, which could lead to tariffs on overseas producers.
The administration has also proposed a potentially radical overhaul of drug pricing, including the adoption of so-called most favoured nation pricing. This would require drugmakers to sell at the lower prices that they offer to comparable developed countries.
Alongside the 200 per cent threat, Trump also said on Tuesday that he would give pharma companies a year or a year and a half to bring production back to the US, before “very high rate” tariffs were imposed.
Many US and European drugmakers have announced large investment plans for the US to try to please the administration and counter the threat of tariffs.
But Matt Weston, a pharma analyst at UBS, said 18 months would not be long enough to move manufacturing to the US, given the time it took to secure regulatory approval and build high-tech manufacturing plants.
“We would usually think of four to five years as the timeline to move commercial-scale manufacturing to a new site,” he said.
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Weston said the companies most affected would be those that imported finished, high-priced goods into the US, but he added that this was not generally what European pharma companies did. Many have at least the final stage of manufacturing in the US.
Analysts at investment management group Capstone said that if tariffs were implemented at this level, it would have a significant impact on US patients. “If 200 per cent pharmaceutical tariffs were enacted, the US will face drug shortages as branded manufacturers encounter increased costs for component imports, and generic manufacturers ultimately elect to exit the US market to protect already razor-thin margins,” they said.
But they also said that they viewed the threat as part of Trump’s negotiating strategy, either on domestic drug pricing policy or as the US negotiated trade agreements with other countries.
Earlier this week, Trump said that Washington was close to reaching an interim trade deal with India, but added that the country would be hit with an additional 10 per cent tariff as part of the Brics bloc of nations.
Both India and the US have said they will look to finish the first tranche of a full deal by autumn. India faces up to 26 per cent tariffs on exports to the US.
