Tariffs on Indian drugs will be a bitter pill for Americans

With Donald Trump’s tit-for-tat tariffs on India looming next month, millions of Americans may have to brace for steeper medical bills.

Last week, Indian Commerce Minister Piyush Goyal made an unscheduled trip to the US for discussions with officials, hoping to strike a trade deal.

It followed Trump’s announcement that he would impose tariffs – which are government taxes on foreign imports – on India by 2 April, in retaliation to India’s tariffs on American goods.

Goyal wants to stave off tax increases on India’s critical export industries like medicinal drugs.

Nearly half of all medicines taken in the US come from India alone. Generic drugs – which are cheaper versions of brand-name medications – imported from countries like India make up nine out of 10 prescriptions in the US.

This saves Washington billions in healthcare costs. In 2022 alone, the savings from Indian generics amounted to a staggering $219bn (£169bn), according to a study by consulting firm IQVIA.

Without a trade deal, Trump’s tariffs could make some Indian generics unviable, forcing companies to exit part of the market and exacerbating existing drug shortages, experts say.

Tariffs could “worsen the demand-supply imbalances” and the uninsured and poor will be left counting the costs, says Dr Melissa Barber, a drug costing expert from Yale University.

The effects could be felt across people suffering from a range of health conditions.

Over 60% of prescriptions for hypertension and mental health ailments in the US were filled with Indian-made drugs, according to the IQVIA study funded by the Indian Pharmaceutical Alliance (IPA).

Sertraline, the most prescribed antidepressant in the US, is a prominent example of how dependent Americans are on Indian supplies for essential drugs.

Many of them cost half as much as for those from non-Indian companies.

“We are worried about this,” says Peter Maybarduk, a lawyer at Public Citizens, a consumer advocacy group fighting for access to medicines. One in four American patients already fail to take medicines due to their costs, he adds.

Trump is already reportedly facing pressure from US hospitals and generic drugmakers because of his tariffs on Chinese imports.

The raw materials for 87% of the drugs sold in the US are located outside the country and primarily concentrated in China which fulfils around 40% of global supply.

With tariffs on Chinese imports rising 20% since Trump took office, the cost of raw materials for drugs have already gone up.

Trump wants companies to shift manufacturing to the US to avoid his tariffs.

Big pharma giants like Pfizer and Eli Lily, that sell brand name and patented drugs, have said they are committing to move some manufacturing there.

But the economics for low-value drugs do not add up.

Dilip Shanghvi, chairman of India’s largest drugmaker Sun Pharma, told an industry gathering last week that his company sells pills for between $1 and $5 per bottle in the US and tariffs “do not justify relocating our manufacturing to the US”.

“Manufacturing in India is at least three to four times cheaper than in the US,” says Sudarshan Jain of the IPA.

Any quick relocation will be next to impossible. Building a new manufacturing facility can cost up to $2bn and take five to 10 years before it is operational, according to lobby group PhRMA.

For local pharma players in India, the tariff blow could be brutal too.

The pharmaceutical sector is India’s largest industrial export according to GTRI, a trade research agency.

India exports some $12.7bn 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 “trade differential” of 10.9%. Any reciprocal tariffs by the US would increase the costs for both generic medicines and specialty drugs, according to GTRI.

It flags up pharmaceuticals as one of the sectors that is most vulnerable to price increases in the US market.

Indian firms which largely sell generic drugs already work on thin margins and won’t be able to afford a steep tax outgo.

They sell at much lower prices compared to competing peers, and have steadily gained dominance across cardiovascular, mental health, dermatology and women’s health drugs in the world’s largest pharma market.

“We can offset single-digit tariff hikes with cost cuts, but anything higher will have to be passed down to consumers,” the finance head of a top Indian drugmaker who didn’t want to be identified, told the BBC.

North America is their biggest revenue source, contributing a third of the earnings and profitability of most companies.

“It is the fastest growing market and most crucial. Even if we increase exposure to other markets, it will not adjust for any loss in the US market,” the finance head said.

Umang Vohra, CEO of India’s third-largest drug firm Cipla, said at a public gathering recently that tariffs should not ultimately dictate what businesses do, “because there is a risk that four years later, those tariffs may go away”.

But four years is a long time, and could make or break the fortunes of several companies.

To avoid any of this, “India should just drop its tariffs on pharma goods”, Ajay Bagga, a veteran market expert told the BBC. “US drug exports into India are barely half a billion dollars, so the impact will be negligible.”

The IPA, which consists of India’s largest drug makers, has also recommended zero duty on US drug exports so that India isn’t negatively impacted by reciprocal levies.

Indian Prime Minister Narendra Modi’s government recently added 36 life-saving drugs to the list of medicines fully exempted from a basic customs duty in the budget, and President Trump dropped a hint last week that India could be yielding to his pressure.

India has agreed to cut tariffs “way down”, he said, because “somebody is finally exposing them for what they have done”.

Delhi has not responded yet, but pharma players in both countries are nervously waiting to see the specifics of a trade deal that could have a bearing on lives and livelihoods.

“In the short term, there may be some pain through new tariffs, but I think they’ll make significant progress by the fall of this year for a first tranche [trade] agreement,” Mark Linscott, former assistant US trade representative, told the BBC, adding that neither country could afford a breakdown in pharma supply chains.

Follow BBC News India on Instagram, YouTube, X and Facebook.