President Trump will soon announce new “Section 232” tariffs on pharmaceutical imports to bolster national security.
This focus is rooted in legitimate geopolitical concerns. Right now, America sources many essential medicines and drug ingredients from our chief adversary, China. Giving the Chinese Communist Party the ability to cut off Americans’ access to medicines is a disaster waiting to happen.
But there’s no reason to extend pharmaceutical tariffs to allies like Europe, Japan and India. That wouldn’t merely harm America’s businesses by raising costs on medicines and their ingredients, but it’d actually empower China.
American drug manufacturing is booming. Companies have recently announced more than $200 billion in new domestic investments. Nearly 350,000 Americans already work at hundreds of drug manufacturing plants across the country. And each manufacturing role can support up to nine other U.S. jobs.
But this growth, and the jobs that come with it, depends on a favorable business environment. Drug supply chains are some of the most complex and fragile of any major industry, due to the unique regulatory requirements involved with manufacturing potent medicines that have to be perfect, every time.
Many companies – both those headquartered in the United States and abroad – manufacture billions of dollars’ worth of drugs here but source at least some of their ingredients from abroad. Nearly one-third of the active pharmaceutical ingredients in the drugs Americans consume come from Europe.
America imports roughly $200 billion worth of drugs and ingredients per year. So even a small tariff would increase domestic manufacturers’ costs by tens of billions of dollars.
Virtually no firm would be spared. Nearly 95% of biotech companies expect sharp increases in their manufacturing costs should tariffs be imposed on imports from the European Union, according to one recent survey.
Some of those costs would undoubtedly be passed on to consumers. But manufacturers will also absorb some of the costs themselves and cut back on investment and expansion plans as a result.
The chaos and closures resulting from higher input costs would help China accomplish its goal of overtaking the United States and dominating the global biopharma market. Its drug sector is already growing at an unprecedented pace. Hamstringing U.S. firms would result in less competition for China across global markets.
Even if the U.S. could domestically produce every single pharmaceutical input or product our country requires, it would still make sense to encourage some production by trusted trading partners. Supply chain resilience depends in part on redundancy. We’ve seen this firsthand when key U.S. production and distribution centers have been impacted by natural disasters or other unforeseen interruptions, leading to critical shortages of medicines and baby formula, for example.
Tariffs can be a powerful tool to improve national security. But only if they’re levied in a targeted manner on our adversaries, not our allies. Imposing what’s effectively a massive sales tax on American manufacturers won’t result in a stronger economy or stronger defense.
Anthony J. Zagotta is the president of the Center for American Principles.
