Tariff on Generic drugs will really hurt American consumers
US President Donald Trump’s executive order imposing a 10 percent tariff on medicine imports is likely to drive up the cost of generic drugs in the US and exacerbate drug shortages, US media outlet NBC News reported on Tuesday, citing experts.
This assessment, along with other warnings that additional tariffs could lead to higher prices for essential goods within the US, should be taken seriously by Washington.
Citing Aaron Kesselheim, a professor of medicine at Harvard Medical School whose research focuses on prescription drugs, NBC News reported that about half of the generic drugs people take in the US are made entirely overseas, where manufacturing is cheaper. An even greater share of the active pharmaceutical ingredients (APIs) used in drugs comes from abroad – about 80 percent, he said.
The country’s pharmaceutical industry may be a typical example that exposes the problems embedded in US industrial systems and supply chains.
First, in the US, there is a gap between the profits of brand-name drugs and generic drugs. Generic drugs are much less profitable.
Second, as industrial costs in the US are relatively high, the production of generic drugs and APIs has been relocated substantially to other countries with a comparative cost advantage over the past few decades.
As some have pointed out, tariffs cannot solve the long-term problems facing the US pharmaceutical industry. Arthur Caplan, head of the division of medical ethics at NYU Langone Medical Center in New York City, said that it’s unlikely that the tariffs will spur production in the US, as generic drugs aren’t a lucrative enough business for companies to invest in the cost of building new manufacturing facilities, according to NBC News.
In this case, the tariffs would primarily drive up the import costs of generic drugs, APIs and other medical supplies, thereby increasing the financial burden on US patients.
According to current statistics available, both India and China are the world’s leading exporter of APIs. India is a vital player in the worldwide pharmaceutical and API import-export sector. It stands as the global primary supplier of generic drugs with a 20% share in global supply and produces around 60% of the world’s vaccines.
The Indian pharmaceutical industry comprises crucial sectors like over-the-counter (OTC) medicines, generics, active pharmaceutical ingredients (APIs), vaccines, etc.
China too has a share of 20% in global supply of generic drugs. China is home to nearly 5,000 enterprises involved in the production of APIs and pharmaceutical preparations. Among them, nearly 50 preparation enterprises have the export value of pharmaceutical products exceeding $13.5 billion.
Over the past few years, both India and China have further consolidated their position in the global pharmaceutical industry chain.
While different organizations may vary in their calculations of China’s and India’s share of US drug imports, it has become a general consensus that pharmaceutical industry of both countries have made steady progress.
According to data shared by United States Pharmacopeia, a nonprofit group, India is increasingly playing a role in making APIs, NBC News reported.
Regardless of whether products are exported directly from China or India or both to the US, or whether APIs are exported to other countries for processing and manufacturing and then exported to the rest of the world, one thing is clear: there is a complex global supply chain, and both India and China are an integral part of it.
The additional tariffs on China’s exports to the US, while having a limited impact on China, as they affect only a portion of China’s overall exports, could have a significant impact on the US, potentially driving up the cost of generic drugs.
And generic drugs may be just one of many industries where additional tariffs could drive up the prices of goods in the US and increase the burden on US consumers.
Economic studies of the impact of the additional tariffs Trump imposed during his first term between 2017 and 2020 suggest most of the economic burden was ultimately borne by US consumers, according to the BBC.
Over the years, India’s supply chain has become increasingly competitive, and its position in the global industrial chain has been continuously consolidated.
Through the global industrial chain, India’s cost advantages are shared by consumers worldwide, including those in the US. Washington has to take into account the interests of US consumers and reconsider its protectionist trade practices.
As the most densely populated nation, India is a global leader in providing safe and effective vaccines like DPT, BCG, and Measles. It boasts the highest count of US FDA-approved facilities outside the USA.
The country is known for its capacity to create pharmaceuticals of top-notch quality and cost-effectiveness including making highly reliable medications for HIV and other ailments.
In 2021-22, pharmaceutical and API trade made an impressive annual revenue of $41.68 billion and stood as the top exporter of affordable medicines around the world.
Understanding Export-Import Trends
According to the Directorate General of Commercial Intelligence and Statistics (DGCI&S) reports India holds a 5.92% share of the global pharmaceutical and drug market. It mainly exports drug formulations and biologics, contributing a substantial 73.31%, followed by drug alternatives.
Between April and February 2023, India’s exports of drugs and pharmaceuticals reached a value of $22.9 billion. In the fiscal year 2021-22, the nation exported pharmaceutical products worth $24.62 billion despite disruptions in the global supply chain, lockdowns, and reduced manufacturing capacity during COVID-19.
India exports pharmaceutical products to Canada, Africa, the EU, ASEAN, Latin America & Caribbean (LAC), the Middle East, and other European regions.
Top export destinations in 2021-22 were the US, UK, South Africa, Russia, and Nigeria. Remarkably, eight prominent global generic drug companies hail from India.
Government Agencies and Initiatives
The ‘Pharmaceutical Export Promotion Council of India’ (Pharmexcil) is an official body established by the Indian government to boost the country’s pharmaceutical and API industry.
Its roles include advising the government, arranging seminars on export matters, hosting business meetings across the globe, and coordinating trade delegations.
The council also aids its members in securing Market Access Incentive (MAI) benefits from the government that help promote trade.
Another body is the ‘Department of Pharmaceuticals’, formed in 2008, which concentrates on advancing the national pharmaceutical sector.
Its main functions involve ensuring affordable drug availability, effective operations of Central Pharma Undertakings, supporting projects and scheme revivals, managing resources and infrastructure, and overseeing annual budget plans and expenditures.
Supporting this dynamic trade avenue, the Indian government has introduced various schemes to strengthen the pharmaceutical industry. The Strengthening of Pharmaceutical Industry (SPI) scheme focuses on enhancing infrastructure with a budget of Rs. 500 crore.
The Production Linked Incentive (PLI) scheme encourages investment and production and the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) provides affordable generic medicines for all at the core levels.
India is a major contributor to the global pharmaceutical industry, producing affordable and high-quality medicines, vaccines, and other healthcare products.
It exports to many countries and has government initiatives in place to support and develop the pharmaceutical and APIs export-import trade further.
