A Hard Pill to Swallow: 100% Tariffs Hit Pharma

The Administration has deployed this national security tool against the pharmaceutical industry for the first time in the statute’s history, imposing up to 100% tariffs on patented pharmaceuticals and active pharmaceutical ingredients, with reduced rates for trade-deal countries and companies that commit to onshoring and pricing agreements. For now, generic drugs and biosimilars are exempt from tariffs, though this treatment may be revisited in a year.

What Happened

On April 2, President Trump signed a proclamation titled “Adjusting Imports of Pharmaceuticals and Pharmaceutical Ingredients into the United States,” imposing new tariffs on imported patented pharmaceuticals and their associated active pharmaceutical ingredients (APIs) under Section 232 of the Trade Expansion Act of 1962.

The proclamation follows an investigation by the US Secretary of Commerce, which found that patented pharmaceuticals and associated APIs, including key starting materials, are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security. The Administration determined that a self-sufficient domestic manufacturing and industrial base for pharmaceutical products is vital for national defense and public health, and that heavy US reliance on imports threatens access to life-saving medications in the event of global supply chain disruptions.

How the Tariff Rates Work: Onshore or Pay Up

The proclamation creates a tiered rate structure designed to push companies toward domestic manufacturing and pricing concessions. 

100% - The Default Rate: The proclamation establishes a baseline 100% ad valorem duty on imports of patented pharmaceuticals and APIs listed in Annex I. The tariffs take effect on July 31 (120 days) for the 17 large companies listed in Annex III and September 29 (180 days) for all other companies.

20% - The Onshoring Rate: Companies that have, or will soon have, onshoring plans approved by the Secretary of Commerce to produce pharmaceuticals and associated APIs domestically will be subject to a 20% ad valorem duty rate. However, this reduced rate is temporary. It will increase to 100% on April 2, 2030 (four years after the proclamation date).

0% - The Onshoring and MFN Pricing Rate: Companies with both an approved onshoring plan and a Most-Favored-Nation (MFN) pharmaceutical pricing agreement with the US Department of Health and Human Services (HHS) are subject to a 0% ad valorem duty rate until January 20, 2029. 

15%-10% - The Trade Deal Rate: Patented pharmaceuticals and APIs from the European Union, Japan, the Republic of Korea, Switzerland, and Liechtenstein are subject to a 15% ad valorem duty rate, unless a lower rate applies under another provision of the proclamation. Products from the United Kingdom are subject to a 10% ad valorem tariff rate, which may be reduced to zero under a future US-UK pharmaceutical pricing agreement.

What Is Covered: Understanding the HTSUS Landscape

The proclamation’s tariff universe is divided into two tiers. Annex I enumerates approximately 120 specific 10-digit Harmonized Tariff Schedule of the United States (HTSUS) codes across Chapters 29 (Organic Chemicals) and 30 (Pharmaceutical Products) that are subject to the active tariff rates described above. 

Annex IV, on the other hand, identifies a far broader set of over 400 HTSUS codes that are formally “subject to” the Section 232 action but carry a 0% tariff rate — effectively exempting those products from Section 232 tariffs while establishing a legal framework for potential future tariff adjustments. Notably, products classified under the HTSUS codes in Annex IV are exempt from both Section 232 tariffs and the newly implemented worldwide Section 122 tariffs which are currently at 10%.

The two Annexes are complementary and do not overlap. Within a given HTSUS heading, some 10-digit suffixes appear in Annex I while others appear in Annex IV.

• Within Chapter 29, Annex I is surgically targeted at the “Drugs” breakout lines — the specific statistical suffixes within each chemical family heading that the HTSUS designates for pharmaceutical compounds. For example, within heading 2933 (heterocyclic compounds with nitrogen hetero-atoms) — the covered codes capture drug-specific suffixes for antihistamines, anti-infective agents, antidepressants, cardiovascular drugs, and central nervous system agents, while non-drug compounds classified in the same heading (including pesticides, industrial chemicals, and photographic chemicals) fall outside Annex I’s scope. 

• In Chapter 30, Annex I captures finished dosage-form medicaments under heading 3004 — with granular breakouts spanning anti-infectives, antineoplastics, cardiovascular drugs, dermatologicals, respiratory agents, and more — as well as biologics under heading 3002 (including antisera, monoclonal antibodies, vaccines, and cell therapy products) and unmixed medicaments under heading 3003.

• Notably, all vitamin codes (heading 2936), most broad-spectrum antibiotics (including ampicillin, streptomycins, tetracyclines, and erythromycin), and cortisone-family steroids are placed in Annex IV rather than Annex I, meaning they currently face a 0% Section 232 tariff rather than the active rate structure.

What Is Exempt

Aside from the products imported under the HTSUS codes listed in Annex IV, the proclamation specifically exempts the following products from Section 232 tariffs.

• Generic Pharmaceuticals: Generic pharmaceuticals and their associated ingredients, including biosimilar products, are not subject to Section 232 tariffs “at this time.” However, this exemption will be reassessed within one year. 

• Specialty Products: Certain specialty pharmaceutical products are exempt from tariffs, provided that the Secretary of Commerce, in consultation with the US Trade Representative and the Secretary of HHS, determines they are either products (1) from a jurisdiction with a current or forthcoming trade and security framework agreement, or (2) that meet an “urgent United States health need.” These specialty categories include drugs and associated ingredients where all approved indications are designated as orphan drugs pursuant to the Orphan Drug Act (21 U.S.C. § 360bb et seq.), nuclear medicines, plasma derived therapies, fertility treatments, cell and gene therapies, antibody drug conjugates, medical countermeasures related to chemical, biological, radiological, and nuclear threats, and pharmaceutical products for animal health. The proclamation requires the Secretary of Commerce to publish a Federal Register Notice when the conditions above are met and notify US Customs and Border Protection (CBP) of all such products.

• US-Origin Products: Imports of US-origin pharmaceutical products are not subject to the tariffs imposed by this proclamation. 

Procedural Provisions

• FTZs: Products subject to the proclamation’s tariffs that are admitted into a US foreign trade zone (FTZ) on or after the effective date must be admitted as “privileged foreign status” under 19 CFR 146.41, locking in duty exposure at the time of admission. Products eligible for “domestic status” under 19 CFR 146.43 are excepted from this requirement. 

• Drawback: Duty drawback is available with respect to duties imposed by the proclamation. 

• Antidumping, Countervailing, and Other Duties: All existing AD/CVD or other duties continue to apply in addition to the Section 232 tariff.

• Column 1 Interaction: The sum of the new Section 232 tariff and the Column 1 HTSUS rate equals the applicable rate under the proclamation. If the Column 1 rate already exceeds the proclamation rate, then only the Column 1 rate applies. If multiple rates apply under this proclamation, the lowest one applies.

• Enforcement: The proclamation establishes external audit requirements and monitoring mechanisms. Companies that fall out of compliance face tariff increases applied both prospectively and retroactively on imports from the relevant companies, along with other penalties consistent with applicable law.

Key Observations and Takeaways

• MFN Pricing — A New Take on an Old Idea: While the specific terms of these bilateral agreements have not been made public, the MFN pricing concept requires companies to offer the US government pricing on patented drugs no worse than the most favorable price offered to any other developed country — echoing prior federal drug pricing proposals, most notably the 2020 Centers for Medicare & Medicaid Services (CMS) interim final rule (CMS-5528-IFC) that would have tied Medicare Part B reimbursement to international reference prices. In this iteration, however, the enforcement mechanism is Section 232 tariff leverage rather than Medicare reimbursement rules, and the agreements are negotiated on a company-by-company basis with both Commerce and HHS.

• Companies on Annex II Appear to Have a Tariff Reprieve Until at Least 2029: Thirteen companies listed in Annex II have already executed agreements with the Secretary of Commerce prior to the proclamation, and the proclamation’s “for avoidance of doubt” language expressly confirms that these companies qualify for the 0% rate, strongly indicating that their agreements encompass both onshoring commitments and MFN pricing components. Four additional companies listed in Annex III — Pfizer, Regeneron, GlaxoSmithKline/ViiV Healthcare, and Johnson & Johnson — are reportedly still in active negotiations. The Secretary of Commerce may also extend the zero rate to firms likely to qualify soon, including those with agreements in principle.

• Several Major Pharmaceutical Companies Remain Outside the Annexes: A number of large multinational pharmaceutical companies with significant US import volumes of patented products do not appear in either Annex II (executed agreements) or Annex III (the 17 companies subject to the 120-day effective date). These companies — some headquartered in trade-deal countries, others not — will face either the default 100% tariff rate or the applicable trade-deal country rate unless they negotiate their own onshoring and MFN pricing agreements before their respective effective dates. Companies in this category should engage with Commerce and HHS promptly.

• Dual-Use APIs Present an Unresolved Compliance Challenge: The proclamation does not provide a clear mechanism for handling a single API that can be used to manufacture both a patented drug and a generic drug — a common scenario for compounds such as metformin hydrochloride (used in both generic metformin and the patented combination product Janumet) and amlodipine besylate (generic as a standalone calcium channel blocker but also an API in patented combination products). The tariff classification will likely turn on the importer’s intended end-use, and the proclamation expressly requires importers to provide CBP with any information deemed necessary to administer the applicable HTSUS headings. Companies importing dual-use APIs should be prepared to segregate shipments and document end-use at the time of entry to preserve eligibility for the generic exemption.

• Tariff Classification Will Carry Heightened Stakes: The granularity of the Annex I versus Annex IV distinction at the 10-digit HTSUS level means that the classification of an imported pharmaceutical product will determine whether it faces the active tariff regime or a 0% rate. Misclassification could result in significant underpayment with penalty exposure, or unnecessary overpayment of duties. Companies should conduct a thorough review of their current HTSUS classifications for all pharmaceutical imports.

• Drawback and FTZ Strategies Merit Immediate Evaluation: The explicit availability of duty drawback creates potential cost-recovery opportunities for companies that re-export pharmaceutical products. At the same time, the FTZ privileged-foreign-status requirement means that pharmaceutical products admitted to FTZs on or after the effective date will lock in duty exposure at the time of admission, limiting the ability to defer or manage duties through FTZ planning.

• The Sunset Provisions Create a Compliance Timeline With Escalating Stakes: The 0% MFN pricing rate expires on January 20, 2029, at which point covered companies will default to the 20% onshoring rate. That 20% rate itself increases to 100% on April 2, 2030. Even companies with favorable treatment today should not assume permanence — the tariff structure is designed to ratchet upward over time, reinforcing the urgency of completing domestic production buildout.

What This Means for Your Business

• Significant Cost Increases Are Coming: Companies without MFN pricing or onshoring agreements face a 100% tariff on all imported patented pharmaceutical products and associated APIs. Even companies in trade-deal countries face new duty burdens at the 10% to 15% level. These additional costs will impact landed cost calculations, product pricing, and margin structures across the pharmaceutical supply chain.

• The Pressure to Onshore Is Real: The proclamation’s tiered tariff structure is designed to push companies toward domestic manufacturing. The Administration has indicated that approximately $400 billion in new investment commitments have already been announced. Companies that do not pursue these pathways will face increasingly high tariff treatment.

• Supply Chains Face Disruption: For companies that rely on imported branded drugs or APIs, particularly those sourced from countries without preferential trade agreements, the 100% tariff could significantly disrupt existing sourcing arrangements. Companies that rely on contract manufacturers outside the United States, and that are not part of the named Annex III companies, will have 180 days (until September 29, 2026) before the tariffs apply. 

• Generic Drug Manufacturers Should Stay Alert: Although generic drugs and biosimilars are currently exempt, the one-year reassessment provision means that companies in this segment should not assume indefinite immunity from Section 232 duties. 

The pharmaceutical Section 232 action represents a significant escalation in the Administration’s use of trade tools to reshape domestic industrial policy. We are closely monitoring these developments and their implementation. Please do not hesitate to reach out to our International Trade and Customs Compliance team with questions about how this proclamation may affect your organization.