President Trump announced a new tariff regime on patented pharmaceuticals and associated pharmaceutical ingredients intended to onshore manufacturing and boost most-favored-nation pricing schemes. Relying on an investigation under Section 232 of the Trade Expansion Act of 1962, the Department of Commerce identified that tariffs were necessary on “national security” grounds. In a new insight, Director of Health Care Policy Michael Baker discusses the policy limits of such a strategy, especially considering regularly shifting trade policies.

Key points:

• The proclamation establishes a default 100 percent tariff on identified patented drugs and related inputs, a 20 percent tariff rate for companies with Department of Commerce-approved plans to onshore production, and lower rates for other nations with already signed trade deals.
• These new tariffs are simultaneously intended to reduce domestic drug prices, compel companies to join most-favored-nation pricing accords and onshore pharmaceutical manufacturing facilities, and lead trading partners to make various concessions to the administration.
• While tariffs may be able to coerce behavior, they are a poor instrument to address affordability concerns and onshore pharmaceutical production; they are especially ill-suited to an industry as costly, complex, and internationally integrated as pharmaceuticals.

Read the analysis.