Trump drops pharma tariff bombshell: Is India’s $50 billion drug industry in trouble? Challenges & the way forward

Representational Image

When US President Donald Trump unveiled his sweeping "Liberation Day" tariffs on April 2, sparing pharmaceuticals came as a major relief for top exporters like India, Japan, and Ireland. Indian pharmaceutical stocks tumbled 4.4% on Friday, erasing gains from the previous session, after Trump threatened steep tariffs on the sector, sparking fresh concerns over future trade policies.

He announced a 10 percent universal tariff on all imports, set to begin on April 5, along with even higher tariffs to be implemented starting April 9. Imports from India were subjected to a flat 27 percent tariff.

Along with these actions, a 25 percent tariff on automobile imports was put into effect on April 3. In its directive, the Trump administration excluded pharmaceuticals and semiconductors from the reciprocal tariff policy.

“The chips are starting very soon. Pharma is going to start coming in, I think, at a level that we haven’t really seen before. We are looking at pharma right now. Pharmaceuticals. It’s a separate category. We’ll be announcing that sometime in the near future. It’s under review right now,” Trump said, speaking to reporters aboard Air Force One on Thursday evening (IST).

His “never-seen-before” measures, aimed at boosting domestic production and reducing dependence on foreign drug manufacturers, is expected to have major repercussions for the global pharmaceutical industry, particularly for India, which is one of the greatest suppliers of generic medicines to the US.

Pharma stocks feel jitters

The Indian pharmaceutical industry is beginning to experience some unease, and the outlook for them in the US market remains uncertain. Until Thursday, several analysts suggested that the US government may have excluded pharmaceuticals from reciprocal tariffs, as it prioritizes improving access to affordable healthcare for American citizens.

However, Trump's recent remarks suggest that the industry might not stay protected, causing apprehension among investors.

On Friday, shares of Indian pharmaceutical firms, such as Aurobindo Pharma, Laurus Labs, IPCA Laboratories, and Lupin, fell by up to 8% following Trump's indication that tariffs on the industry were forthcoming.

How will this impact India’s pharma industry?

India's pharmaceutical industry plays a crucial role in its economy, representing almost 20% of the worldwide generic drug exports. According to CRISIL, India shipped US $8 billion worth of pharmaceutical products to the United States in fiscal year 2024, making it the country's top export market. The Indian pharmaceutical industry provides 40 percent of the generic medications used in the US and boasts over 650 manufacturing plants recognized by the US Food and Drug Administration (USFDA), which is the second-largest number globally outside the US. These facilities represent 25 percent of all such certified locations beyond the United States.

Since the US is one of its major markets, the introduction of tariffs could hinder trade, raise drug costs, and compel Indian pharmaceutical firms to reevaluate their export strategies. In this overview, we analyze the implications of Trump's tariffs for India's pharmaceutical sector and the possible actions India could implement to lessen the impact.

Below are the possible consequences if US imposes tariffs on pharmaceutical products:

• Indian medicines will become more expensive for US buyers.

• Generic drug manufacturers, which operate on thin profit margins, will face additional cost pressures.

• Indian pharma giants like Sun Pharma, Dr. Reddy’s, Cipla, and Lupin may see reduced revenue from the US market.

• India exports a significant number of APIs to the US, yet it relies on China for about 70% of its API imports. Should tariffs on APIs be introduced, Indian manufacturers will encounter a dual challenge—escalating costs for raw materials and heightened tariffs on finished goods sent to the US.

Possible countermeasures

1. India can diversify its export markets by increasing trade with Europe, Africa, and Latin America. Countries like Canada, Australia, and Japan are also potential markets where Indian pharma companies can expand their footprint.

2. The Indian government may pursue diplomatic discussions with the US to obtain exemptions or lower tariffs. Efforts by Indian pharmaceutical associations and healthcare organizations in the US could influence the Trump administration to rethink its stance.

3. India has initiated the Production Linked Incentive (PLI) program to enhance domestic API production. Investing in API hubs and local manufacturing may protect the Indian pharmaceutical industry from potential trade disruptions in the future.

4. Indian pharma giants could consider setting up manufacturing units in the US to avoid tariffs. Companies like Lupin and Dr. Reddy’s already have manufacturing plants in the US, and more firms could follow suit.