Build in America or pay: Trump tariff threat rattles Indian drugmakers

Indian pharmaceutical companies woke up to yet another salvo from US President Donald Trump, who has threatened to impose a 100 per cent tariff on every branded or patented drug imported into America starting October 1, 2025, unless the manufacturer is already building a plant in America.

The announcement came, characteristically, on Trump’s social media platform TRUTH Social, where he wrote: “Starting October 1, 2025, we will be imposing a 100% tariff on any branded or patented pharmaceutical product, unless a company is BUILDING their Pharmaceutical Manufacturing Plant in America. ‘IS BUILDING’ will be defined as ‘breaking ground’ and/or ‘under construction.’ There will therefore be no Tariff on these Pharmaceutical products if construction has started. Thank you for your attention to this matter!”

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The blunt threat aims to force multinational drugmakers to produce inside the US rather than rely on imports. While the post was short on details, its implications for Indian drug makers are complex.

As per a JM Financial report, published in April, Indian pharmaceutical exports to the US are massive; with drug formulations alone making up about 10 per cent of India’s total US exports, or roughly $9-10 billion a year, and a broader category of chemicals and pharmaceuticals totalling around $12.7 billion for 2024.

Who’s at risk

The United States accounts for $450-500 billion of the $1.3 trillion global pharma market, according to a B&K Securities note. Indian firms sell everything from low-margin generics, which are off-patent copies of branded drugs, to higher-margin specialty therapies still protected by patents.

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B&K flags that specialty brands and biosimilars are most exposed currently to Trump's new plans. While branded or patented drugs are medicines still under patent or sold under a trademarked name, which allows the manufacturer to charge premium prices; biosimilars are near-identical versions of complex biologic drugs; even though patents may have expired. These biosimilars are mostly marketed like brands and would still count as “branded” under Trump’s tariff.

Evan David Seigerman, analyst at BMO Capital Markets, points out that Trump’s statement leaves critical questions unanswered

Take, for instance, Sun Pharma, India’s largest drug maker, which earns about $1.2 billion from the US, with marquee products such as Ilumya, a psoriasis treatment generating $650 million annually. Or Biocon, which is a key exporter of biosimilars that would count as branded products, subject to Trump tariffs.

Alongside these innovators are contract development and manufacturing (CDMO) specialists such as Divi’s, Laurus, Neuland and Cohance, which supply active pharmaceutical ingredients (APIs) — which are the chemical or biological substances that give a drug its therapeutic effect — to global pharma companies.

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Because Trump’s tariff targets finished branded products, B&K Securities in its report said Indian API suppliers may face “lesser impact”, since many of their customers already operate or are planning US manufacturing plants such as Eli Lilly, Novartis, Merck and GSK. B&K underscores that these players have already announced plans to invest $25-30 billion in US manufacturing, so the Indian suppliers to these companies, especially API makers, may even benefit as customers’ onshore production.

The breather for Indian pharma would be that Indian generic drug makers are exempt “for now”, because generics, copies of branded drugs made once patents expire, are neither patented nor branded.

What does the tariff do?

Evan David Seigerman, analyst at BMO Capital Markets, points out that Trump’s statement leaves critical questions unanswered, such as, "What exactly will the tariff apply to? The selling price, the cost of goods, or just the finished pill? And would minimal US activities like “fill/finish” (final packaging and labelling) count as manufacturing?"

“Hypothetically a BioPharma company could have broken ground on a facility and claim that they will make this product to circumvent the tariff, whether that manufacturing eventually occurs may be moot,” Seigerman wrote. BMO’s Seigerman also reads the move as a way to pressure global companies to “manufacture some product in the US for the US market” while leaving generics largely untouched.

A Jefferies report echoed the uncertainty but argued the industry may weather the storm. The note recalled that many large-cap drug makers such as Merck, Bristol Myers Squibb, Eli Lilly, Pfizer, AbbVie, Johnson & Johnson, are already investing in US plants. If we were to take Trump’s definition of “building,” as merely breaking ground it could spare global pharma companies from tariffs; and down the end their Indian suppliers.

BMO's Seigerman notes that the US Department of Health and Human Services (HHS) has already sent a separate global drug pricing proposal to the Office of Management and Budget for review.

Jefferies also highlighted that Trump coupled his tariff threat with talk of Most-Favored Nation (MFN) drug pricing pilots. MFN pricing would peg US drug prices to the lowest price charged in peer countries, but analysts doubt those pilots will survive legal challenges, noting that similar efforts in Trump’s first term were struck down because they risked limiting patient access.

Impact on Indian strategy

For Indian pharma, the immediate takeaway is mixed, say analysts; as specialty innovators like Sun Pharma and Biocon may need to accelerate US manufacturing plans or partner with American contract manufacturers to avoid tariffs on key branded products. Sun’s Ilumya, for instance, is made in Korea through Samsung, which could be problematic unless Samsung breaks ground on a US facility.

On the pros, API and CDMO firms such as Divi’s supply ingredients to multinational drug makers that are already expanding in the US, would potentially shield Indian suppliers. And generic giants such as Dr. Reddy’s, Aurobindo, Lupin look safe for now because Trump explicitly targets branded and patented drugs. But analysts caution that “many generics are protected by some patents,” as BMO’s Seigerman notes, leaving room for interpretation.

What comes next

BMO's Seigerman notes that the US Department of Health and Human Services (HHS) has already sent a separate global drug pricing proposal to the Office of Management and Budget for review. Any formal rule must comply with the Administrative Procedures Act, which requires public comment and detailed justification – guardrails that derailed Trump’s earlier attempts to cut drug prices.

For now, Indian companies face a waiting game. “As with most policy by tweet, the details are scant,” BMO’s Seigerman cautioned. Jefferies adds that the tariff threat may be more political theatre than economic reality, aimed at delivering an “on-paper win heading into midterms” rather than a wholesale reshaping of global pharma supply chains.

Still, Indian boardrooms need to strategise for what's ahead, said industry observers. Sun Pharma and Biocon, in particular, may need contingency plans ranging from US joint ventures to licensing deals that allow American partners to finish manufacturing domestically, said analysts.