Pharma Tariffs Would Be Importers’ Chance to Revamp Operations

The Trump administration’s potential tariffs on imported pharmaceutical products are an impetus for US companies to explore strategic and tactical mitigation opportunities to strengthen systems, operations, and growth.

Although the administration’s stated Oct. 1 enactment date passed without enactment, there is no ignoring the immediate cost pressures that would result from a 100% tariff on imported branded or patented pharmaceutical products, even with exceptions for manufacturers that commit to building facilities in the US.

As the administration seeks deals with certain pharmaceutical giants, the specter of tariffs opens the door to strategic transformation. Biopharma companies, especially those in the middle market, can walk through it by:

• Reshoring production to qualify for tariff waivers
• Partnering with US-based contract development and manufacturing organizations, or CDMOs, to meet domestic value-add requirements
• Leveraging trade agreements to reduce exposure via origin-based exemptions
• Pursuing short-term tactics such as bonded warehouses, foreign trade zones, and the first-sale-for-export rule to improve cash flow and reduce duty costs

Addressing Supply Chains

Strategic mitigation efforts for many biopharmas, including CDMOs, often center on supply chain reconfiguration, exemption pursuits, and operational efficiencies.

Foremost among these is reshoring production to the US, a core incentive baked into the new tariff policy. Companies that announce and execute plans to establish or expand domestic manufacturing sites may qualify for tariff waivers, effectively turning a punitive measure into a catalyst for investment.

This option is most readily available to larger companies, but smaller biopharmas also can explore reshoring by partnering with CDMOs already stateside.

Diversifying supply chains is another pillar of mitigation, particularly through leveraging existing trade agreements that exempt or reduce certain origins. The policy carves out relief for generics and products from allies under frameworks such as the United States-Mexico-Canada Agreement. Additionally, European-made products may benefit from negotiated quotas or reciprocal deals under the US-EU trade framework, where pharmaceutical tariffs are capped at 15%.

Importers can review their vendor portfolios to prioritize suppliers in lower tariff jurisdictions—shifting from China- and India-dependent active pharmaceutical ingredients to Mexico, Canada, or EU-based alternatives.

Tactical Considerations

Biopharma companies also can mitigate tariffs through various tactics, such as bonded warehouses, foreign trade zones, or exploring the first-sale-for-export rule.

Bonded warehouses. These can enable biopharma importers to store goods without immediate payment of tariffs, deferring duties until the products are withdrawn for domestic consumption. This can significantly improve cash flow by freeing up capital that would otherwise be paid upon import, which is especially critical for high-value patented drugs facing the 100% tariff.

In the biopharma sector, where inventory turnover can be slow because of regulatory approvals and batch testing, this deferral can mean holding active pharmaceutical ingredients or finished products for months without financial strain, potentially reducing overall costs by 5% to 10% through better working capital management.

Foreign trade zones. They take things a step further by permitting not just storage but also manufacturing, assembly, or testing within the zone. Duties are assessed only when goods exit the zone into US commerce. If goods are re-exported, no duties apply at all.

For pharmaceuticals, foreign trade zones offer inverted tariff benefits—often paying duties on lower-valued raw materials rather than the higher-valued finished product—and streamlined customs processes that expedite Food and Drug Administration inspections. Several biopharma firms have already converted facilities into foreign trade zones, achieving savings through duty elimination on exports and deferred payments that enhance liquidity amid tariff pressures.

For companies with complex formulations, outsourcing to US-based CDMOs for final assembly can qualify partial exemptions, blending imported intermediates with domestic value-add to dilute the effective tariff rate.

First-sale-for-export rule. In cases involving multitiered supply chains—common in the biopharma sector where manufacturers sell to intermediaries before reaching US importers—the first-sale-for-export rule presents another opportunity to minimize tariff exposure.

Under US customs valuation laws, importers can base the dutiable value on the price of the initial sale (from manufacturer to middleman) rather than the final transaction price to the US entity, provided the first sale is a bona fide transaction for export to the US. This can substantially lower the appraised value by lowering the cost basis on which tariffs are assessed.

For example, with a 100% tariff, if a patented drug’s first-sale price is 30% to 50% lower than the importer’s purchase price due to middleman margins, the effective duty savings could be significant—potentially cutting costs by 20% or more in qualifying scenarios.

Implementing first-sale value requires meticulous documentation to substantiate the value and shouldn’t be done without performing a proper analysis.

Tariffs as Catalysts

Although the pharmaceutical tariffs would be disruptive, they offer opportunities for companies to reinvent their operations. By embracing mitigation opportunities, from strategic reshoring to tactical planning, biopharmas could lessen the impact by improving cash flow and minimizing tariff exposure.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jodi Ader is senior manager in RSM US’ trade and tariff advisory services practice.

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