Scope of Pharma Tariffs Unclear; Experts Wonder If Oct. 1 Date Achievable

The government of Ireland also said, “The EU and US Joint Statement issued on 21 August last made absolutely clear that any new tariffs announced by the US on pharmaceuticals under its Section 232 investigation would be capped at 15% for pharma products being exported by the EU.

“This remains the case and underlines again the value of the agreement reached last month.”

Most imported patented drugs are made -- or, more importantly, for CBP origin decisions, their active pharmaceutical ingredients are made -- in the EU, Switzerland, Japan or the U.K.

A social media post from President Donald Trump said that companies that are constructing new facilities in the U.S. will be exempted from the Section 232 tariffs (see 2509250066), but experts were trying to understand what that would mean.

Peter Harrell, former White House senior director for international economics in the Biden administration posted on X: "The most interesting part of the pharma tariffs will be how Trump defines companies that have 'broken ground' on US production or have factories 'under construction.' Will they get exemptions for all current imports, or only products they plan to make in the U.S.? Other parameters? Will the same exemption apply to the semiconductor 232?"

Joseph Damond, a former deputy assistant U.S. trade representative for Asia, and currently chair of global life sciences and international trade policy at Crowell Global Advisors, said there are some patented medicines from China and India, but the bulk are from high-income countries like the EU member states, Switzerland or Australia.

Damond, who was speaking on a Washington International Trade Association podcast on Sept. 26, said he wants to know what the president meant when he said the tariff wouldn't apply if the company is building "their Pharmaceutical Manufacturing Plant in America."

Damond, who consults for the industry, said he has questions about how that applies. "Do you have to be producing every single product in the United States? Because you know these companies make a lot of different products. They all manufacture in the U.S. ... but they don't make every product in the U.S."

Even the definition of the drugs covered is unclear.

Damond said, "Are 'branded and patented' synonyms for each other?" He noted that there are generic drugs that have a brand name. "Where do they fall? We just don't know. I mean, until there's an EO out, I don't think there's any way to know."

Former acting deputy USTR Wendy Cutler, also on the WITA panel, said, "This October 1 implementation date is very soon, and we have not seen anything official on this at all. So, I'm skeptical that this can be implemented by October 1. There's so many implementation questions out there."

Fellow WITA Panelist Dan Mullaney, former assistant USTR for Europe and the Middle East, noted that while the EU and Japan have a 15% cap on pharma tariffs in their framework deals, the language in the U.K. deal is more vague, it just says something about a "preferential rate" for products covered by pending Section 232 investigations.

"Whether this 15% cap applies to the U.K. may depend in part on how well those other negotiations are going with respect to other elements of the framework agreement," he said.

He added that if discussions on the U.K. and the EU lowering non-tariff barriers go badly, then the next Section 232 tariff might not be capped.

Switzerland, which doesn't have a trade deal with the U.S., is a major producer of branded pharmaceuticals; the CEO of Novartis told Reuters last week that its stockpiles in the U.S. will last until the middle of next year. Bloomberg reported that Roche, another Swiss pharma giant, is building a facility in the U.S., and once it is done, virtually every drug it sells in the U.S. will be manufactured in the U.S.

The Swiss pharmaceutical industry group says about 40% of the country's exports are pharmaceuticals.

WITA Panelist Mark Linscott, a former assistant USTR for South Asia, noted that even if most of the pharmaceutical exports from India aren't covered by this action, he doesn't think they all will be -- and India's negotiators must try to secure special treatment for Section 232-covered products, like the EU did.

"They've got to negotiate that now, and they've got to negotiate it hard," he said, and not just on pharmaceuticals. If the semiconductor tariffs end up covering phones and computers with chips, that's important to India, too.

So if Indian negotiators have to "work harder to try to get commitments on the 232s that are pending ... it makes the negotiation a little more complicated than they were perhaps, a couple of days ago," he said.

Indian and U.S. negotiators reportedly already thought they had reached a deal once before, but the president rejected it. "I think we're going to see over time a lot of unraveling of agreements that have already been struck or unraveling of negotiations for agreements that may be imminent," Linscott said.

Mullaney agreed that's a risk. He said political support in the EU for ratifying the trade deal "is a bit on a knife's edge." He said the expansion of the steel derivatives list "was a big shock to the EU, because that, of course, is not covered by their deal."

This week, the U.S. launched a Section 232 investigation into machine tools and industrial robots, which he called a "huge preoccupation" of Germany's. The more there are new Section 232 investigations that aren't covered by the 15% cap, especially on key high-value exports like industrial machinery, it could make the "fragile consensus in favor" of the deal crumble, he said.

Although pharmaceuticals had the highest headline number in Trump's announcement, he also said there would be 25% tariffs on heavy trucks (which are primarily imported from Mexico), 50% tariffs on kitchen cabinets, bathroom vanities "and associated products," and 30% on upholstered furniture.

All those tariffs are set to start Oct. 1, as well, he said.

Harrell wrote on X, "I find it hard to buy a 'national security' tariff on bathroom vanities, kitchen cabinets, and upholstered furniture. I could potentially buy a national security rationale for maintaining some basic U.S. sawmill capacity. But focusing on raw lumber would drive up construction prices, which are already high and politically sensitive. If Trump is concerned about furniture dumping, he should use anti-dumping authorities, not a national security rationale." He said that if the furniture tariffs are under the guise of the lumber investigation, as derivative products, then European imports will only face the 15% tariff.

White House trade hawk Peter Navarro posted on X, "Furniture and kitchen cabinets were once proud American industries, gutted by China with help from Vietnam, Malaysia, Indonesia and others. President Trump’s tariffs are critical to protect our craftsmen. Make American Craftsmanship Great Again."

On the WITA panel, Damond questioned why Trump is talking about cabinets and upholstered furniture when it was supposed to be about lumber. "What happened to the rest of the 232 case?" He said it was probably lobbying that led to the high tariffs on cabinets.

Linscott said the announcement on furniture makes it harder for Vietnam to agree to its framework, given that the rates are higher than the 20% country rate.

Damond agreed. He said the EU and Japan had leverage, and it still took them months to get the U.S. to agree to cap Section 232 actions for their exports. "They did succeed at the end of the day to do that. The other countries have not been so lucky. I can tell you the Southeast Asians are like nowheresville on this. They're being told, well, you know, that doesn't count. Like that's going to be decided elsewhere.

He said they're asking themselves: "What are we negotiating for here?"

He said he wonders if the negotiators at USTR are pushing hard for Asian trade frameworks to get written down by the end of the year, so, if the emergency tariffs are ruled unconstitutional at the Supreme Court, the U.S. can say, "Well, we're going to hold you to those commitments because you made them to us, and we have other tools by which to enforce them."