As global trade evolves and tariffs take effect, the pharmaceutical industry faces risks that extend far beyond the immediate costs of importing finished medications. While headlines often focus on the price of prescription drugs crossing borders, in reality, modern pharmaceutical supply chains are complex, global networks with multiple points of vulnerability. A less predictable trade environment is complicating these networks in consequential ways for patients, healthcare providers, and businesses worldwide.
The production of a single medication is rarely straightforward. A pill dispensed at a pharmacy may contain active pharmaceutical ingredients (APIs) sourced from one country, excipients from another, and packaging materials from another, before final assembly at yet another location.
As of November 2025, the pharmaceutical supply chain faces threats of significant disruption, with evolving tariffs and trade policies creating a complex landscape that compels companies to adapt their operations.
China and India are the key suppliers of APIs and generic medications, with the U.S. sourcing as much as 25% of all APIs from China alone. That position affords China significant power in U.S. trade negotiations, as does China’s position in rare earths.
Meanwhile, in 2024, pharmaceuticals were the EU’s largest export to the U.S., worth a reported $127 billion. This underscores a mutual dependency between the two regions: The U.S. relies on critical pharmaceutical components from the EU, while EU businesses depend on these exports.
Beyond ingredients, U.S. pharmaceutical companies increasingly rely on Chinese and Indian firms for clinical development and manufacturing services. This sourcing strategy exposes the industry to a range of tariff and trade-related risks. Legislative efforts such as the proposed U.S. BIOSECURE Act aim to reduce this dependency by restricting relationships with Chinese biotechnology companies deemed a national security concern, signaling another potential shift toward tighter controls.
Tariffs: More Than Just Added Costs
Tariffs do not simply add a single layer of cost to pharmaceutical products. Each supply chain border crossing can become a point of friction. Raw materials may face one set of tariffs, intermediate compounds another, and finished products yet another. For example, an aluminum tariff might be applied to the cover of a medicine package. The cumulative effect can be substantial and unpredictable.
Companies with efficiency-optimized supply chains may suddenly find themselves scrambling to recalculate costs and, in some cases, redesign entire production networks. For example, a 15% tariff on all EU pharmaceutical exports to the U.S. would add an estimated $19 billion in annual costs to be borne by consumers and/or companies, although multiple exceptions have been granted.
Yet any trade disruption goes beyond economics. Pharmaceutical manufacturing operates under stringent regulatory requirements, with each facility needing approval from authorities in the countries where products are sold. Switching suppliers or production locations is not as simple as finding a cheaper alternative. It requires extensive validation, testing and regulatory approval that can take years.
Pharmaceutical companies maintain rigorous oversight to ensure product safety and efficacy. When trade uncertainties force rapid changes in sourcing, maintaining these standards can become challenging. Rushing to qualify new suppliers or production facilities risks compromising safety and cybersecurity, while completing all of the steps could lead to shortages.
Medication shortages may be inevitable. This risk is especially critical for biosimilars and biologic drugs, which are manufactured using living cells in highly controlled environments. The limited number of global facilities capable of producing these drugs makes geographic diversification challenging. Trade barriers affecting these facilities or their supply chains could quickly impact the availability of life-saving treatments.
The situation becomes more precarious when considering regional manufacturing concentrations. A less predictable trade environment amplifies concentration risks. If tariffs or trade restrictions suddenly target a country producing the majority of a critical medication or ingredient, alternatives may be scarce or not readily available.
The financial implications of tariffs and trade uncertainties can cascade through the healthcare system in unexpected ways. Higher production costs do not affect all medications equally. For example, for drugs with limited numbers of makers or those treating rare diseases, manufacturers may pass costs to insurers and patients. However, in lower-cost generic markets, additional costs may make production economically unviable, potentially leading manufacturers to discontinue certain products altogether.
The strategic responses from pharmaceutical companies have begun to shift. Some are exploring reshoring or nearshoring production options to reduce exposure to international trade volatility and qualify for tariff exemptions. Others are diversifying their supplier bases across multiple countries to avoid regional over-reliance. However, these strategies can require significant capital investment, workforce training, and implementation time, and may ultimately lead to increased costs.
Smaller pharmaceutical companies and manufacturers in developing countries face particular challenges. Unlike large multinationals, they may lack the resources to restructure their supply chains, absorb temporary costs, or find alternative suppliers, which increases risks to their operations over time.
Risks and Remedies
The U.S. government has indicated the possibility of escalating pharmaceutical tariffs up to 250% if companies fail to relocate manufacturing domestically, using these measures to seek favorable deals or investment commitments.
For U.S. trading partners, the potential invalidation of tariffs imposed under the International Emergency Economic Powers Act (IEEPA) should not fundamentally alter their view of tariff risks. Other statutory authorities remain available to impose taxes targeting foreign interests, including measures related to offshore profits, the transportation of goods, or outbound investments. For instance, while some tariff measures, such as the 100% tariffs proposed in September 2025, have been paused or modified pending negotiations, the threat of Section 232 actions continues.
Additionally, many countries that secured favorable agreements benefit cannot count on permanent relief. For example, the Japan-U.S. deal grants Pfizer a three-year exemption. Other Japanese pharmaceutical companies still face the risk of a 100% tariff on their branded drugs, which could be waived if they commit to establishing U.S. manufacturing facilities. This indicates that the durability of such deals depends heavily on a variety of factors, including ongoing compliance and continued negotiations. How much of an investment, over what timeframe, and how that will be assessed in years to come remains uncertain.
The pharmaceutical supply chain reflects global interdependence, designed over decades to deliver medications efficiently and affordably. However, trade unpredictability exposes vulnerabilities that must be addressed to build resilient systems ensuring patient access despite geopolitical challenges.
Chris Coppock is head of geopolitical and economic risk analysis at Marsh.