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US tariffs could undo generic drugmakers’ efforts to be less reliant on Chinese raw materials, experts say

There is the long-term threat that US tariffs could lead Indian generic drugmakers to move back to getting most of their APIs from China, which runs counter to the broader industry’s vision of diversifying where they get their raw materials.

One reason for the US’ pharma-specific levies is to reshore drug production to the US, including APIs. But there is the concern that the US would not be competitive soon enough and that generic drug manufacturers would go to China for most of their raw materials, said Marta Wosińska, senior fellow of economic studies at The Brookings Institution.

A drug’s country of origin is currently defined by where its API is sourced from, which will determine what tariff will be placed on the product imported into the US, said Mollie Sitkowski, a trade compliance partner at US law firm Faegre Drinker. For instance, if a drug is assembled in India but the raw materials are from China, the product would have China-related levies.

Indian CDMO Aragen’s chief commercial officer Ashu Tandon told Endpoints News in an email that over the past few years, the company has been investing in developing sourcing for raw materials in India, so much so that its dependence on Chinese raw material imports is less than 5%.

The US has been encouraging drugmakers to source APIs and starting materials from India instead of China, Wosińska said.

But with potentially high US tariffs on India, there is pressure on Indian drugmakers to cut costs, and sourcing APIs for as cheaply as possible — most likely from China — has become attractive, Wosińska said. “How do they cut costs further? Probably by going where they can find the cheapest,” she added.

President Donald Trump has already raised his tariffs on India — but currently exempt pharma goods — which will go into effect at the end of the month. As for China, Trump has delayed those tariffs by another 90 days.

India is a big source of generic drug manufacturing for the US market. Around 60% of solid oral generic drugs come from the country, Wosińska said during Endpoints’ Manufacturing Day last week.

There’s a wider push to expand where drugs and their raw materials are made. A reason for the manufacturing diversification is that, since the Covid-19 pandemic, it has become even more apparent that the industry was overreliant on China, highlighting a broader awareness of how vulnerable drug supply chains are, a Brookings paper from July shows.

Wosińska noted that strategically placed US tariffs could incentivize Indian manufacturers to source raw materials from countries rather than relying solely on China. “We have an opportunity to get Indian manufacturers to try to keep away from Chinese API,” she said.

Wosińska wrote in her feedback to the Department of Commerce’s Section 232 investigation that China-only tariffs would help de-risk the US from Chinese APIs and would encourage drugmakers to seek alternatives like India.

Tandon told Endpoints that any tariffs targeting China would cause Indian CDMOs to evaluate other sourcing options to remain competitive.

But there is a chance that Trump might change the country of origin rule to apply the tariffs on where the drug is made rather than on where the API is sourced from, Sitkowski said.

“If that applies to the pharma tariffs, then we are in a whole new ballgame,” she said.

Source : ENDPOINTS NEWS