Tariffs – The Good the Bad and the Ugly
Tariffs have been categorized by some as a short-term action that has long term negative outcomes. Others look at tariffs as a way to cause a long overdue reckoning for years of other countries taking advantage of trade and price imbalances. The current administration has seen it as a powerful leverage tool to force both foreign and domestic entities to comply to their plans to correct trade imbalance, bring manufacturing back to the U.S. and control the price of prescription drugs. We’ve seen businesses and other countries brought to the negotiation table when the threat of tariffs was employed. Using tariffs in a deliberate and strategic manner to address trade imbalances—especially those stemming from long-standing unfair practices by other nations—could be seen as a good use of tariffs.
Historically, many business leaders and economists have denounced tariffs for their impact on both businesses and the consumer. Tariffs are essentially a tax on imports, and, like any tax or cost of goods, it’s eventually passed on to the consumer. The recent broad use and ever-changing threats have interjected unpredictability into the economy which is the enemy of investment. No one wants to hire or invest in growth when their cost to do business is difficult to predict. This is the bad side of tariffs.
I think the ugly side of tariffs are the unintended consequences and their impact on you and me as the broad use of tariffs plays out. Before diving into the healthcare-specific impacts of recent directives, I want to flag a broader concern. The administration’s use of tariffs and regulatory threats—sometimes aimed at domestic industries and individual companies—raises questions about government overreach.
When letters go out to 17 pharmaceutical firms with demands on pricing and manufacturing, backed by language like “every tool in our arsenal,” it feels less like collaboration and more like control. This kind of targeted pressure sets a precedent that could have long-term implications for how industries operate and innovate.
I believe in thoughtful regulation, but I’m cautious when government assumes it knows best how businesses should run.
Ok, enough of my rant, let’s talk about what could happen to our healthcare because of the proposed tariffs.
The President gave a deadline that the selected drug companies had until the end of September to respond to his letters. He threatened 100% tariffs on those that did not comply, with compliance being:
· Offer Most Favored Nation (MFN) pricing to Medicaid patients
· Guarantee MFN pricing for newly launched drugs
· Sell directly to patients at MFN prices, bypassing middlemen
· Reinvest international revenues into lowering U.S. prices
The President has also said that companies would be punished if they did not move manufacturing from foreign countries back to the U.S. So far, these threats have caused a great deal of concern and some action. Several companies have announced that they would raise the list price of selected drugs in the European Union to match those in the U.S. A few have said they will begin projects to build new manufacturing capabilities in the U.S.
There has also been movement by to create a direct-to-consumer option to help lower prices. There’s a rumor that this week, there will be another announcement by the President concerning prescription drugs. As you might imagine all of this turmoil has caused a great deal of uncertainty in the entire pharmaceutical industry. It’s difficult to understand where this all will lead and what the whole prescription drug system will look like when the smoke clears but there are a few consequences that certainly don’t seem intended that I think will impact vulnerable parts of the industry and ultimately you and me.
Tariffs will affect the small and medium size pharmaceutical companies more severely than the big ones. The smaller companies have more focused supply lines and manufacturing capabilities. They often don’t have the ability, or the financial reserves required, to move their manufacturing stateside. The smaller companies are critical to innovation, and it would seem crazy to create a barrier to their growth.
While there have been indications that most generic drugs would be exempt from tariffs, they do use some critical foreign made active ingredients whose availability and price would be affected by tariffs.
Many experts expect drug prices to rise, beginning after the stockpiles the drug manufacturers are currently building run out. It highlights the unintended consequences that can occur when a business system is quickly altered in unproven ways.
While there is certainly a place for government to establish guardrails and regulations to ensure the access and quality of our healthcare, upsetting the very basis of an industry and controlling the actions of particular companies is not the way to create a long term innovative and secure pharmaceutical industry. There will certainly be more announcements and negotiations before the dust settles. In the meantime I’ll work to keep you up to date on what happens and how it will affect you and me.
Best, Thair