Pharmaceuticals, Semiconductors, and Automobiles, Oh My

What’s Happening: On Tuesday, February 18, President Trump stated that he will likely put 25-percent tariffs on imports of pharmaceuticals, semiconductors, and automobiles around April 2. If this schedule holds, these tariffs would immediately follow the United States Trade Representative (USTR) review of all unfair foreign trade practices which wraps up on April 1 (see a breakdown of the memo here). USTR, alongside several other agencies, will recommend trade remedies, tariffs, and other trade actions to President Trump that will inform any final presidential decisions on how extensive U.S. reciprocal tariffs will be and whether all imports will be subject to product-specific rates.

Why It Matters: The United States imported more than $200 billion in cars, more than $150 billion in medicine/vaccine-related goods, and more than $50 billion in semiconductors/circuits in 2023. If manufacturers were to pass the full cost of the tariff on to consumers, they would pay more than $100 billion in additional costs per year. That said, additional consumer costs would likely rise closer to $62 billion annually, according to the Shipment’s calculations, as businesses will certainly eat some of that cost. These calculations assume only a few categories of chips, autos, and drugs will be hit with 25-percent tariffs, meaning if Trump’s intended scope is broader or tariff rates are higher, this could be just a lower-bound cost estimate. What’s more, this estimate does not even account for the fact that the United States is extremely reliant on imports for many generic medicines, drug ingredients, and semiconductor components, meaning that it has very few alternatives to importing these goods, and thus evading higher costs. In other words, a tariff hike would almost entirely translate into higher costs for consumers and businesses.

Looking Ahead: For now, U.S. consumers, businesses, and trade partners can only wait and see what the final tariffs will look like in these sectors. There have been no real indications that these tariffs are meant as leverage for negotiations, although Taiwan appears to have reacted as if they are, with its companies considering more foreign direct investment in the United States and its government is looking to purchase $10 billion of weapons in an arms deal – an outcome President Trump would likely regard as a victory and may respond in kind by providing Taiwan with certain tariff exemptions. It is unclear what the path to receiving tariff exemptions and avoiding U.S. trade scrutiny looks like for most countries, and this will remain the case for the foreseeable future.

The United States and European Union

What’s Happening: Trade tensions between the United States and European Union (EU) continue as 25-percent tariffs on foreign steel and aluminum are slated to take effect on March 12. Meanwhile, President Trump has threatened the bloc with additional tariffs to address unfair trade practices. The EU may also have to contend with tariffs on both their pharmaceutical and automobile industries (see above). According to reports, U.S. Commerce Secretary Lutnick and EU trade chief Sefcovic are planning to meet this week to discuss how to avoid a trade war. While Sefcovic stated that the EU is open to negotiating tariff and trade deals, it is now clear that the EU will not be reducing its tariffs on U.S. cars, as was earlier reported. To date, neither side has agreed to tariff reductions.

Why It Matters: The United States imported just shy of $600 billion worth of goods from the EU and exported more than $300 billion worth of goods in 2024. The United States and EU, the first and second largest economies, represent one of the most important trade relationships in the developed world. An economic downturn as a result of a trade war between these economies would have downstream effects on the developing world that relies on the United States and EU for exports, investments, and loans. Of course, tariffs on the EU, ranging from reciprocal to a flat 10-percent or so, would also result in additional costs for U.S. consumers—likely tens of billions of dollars annually. Furthermore, if a deal is not reached, the United States will damage relations with its most important partner against China.

Looking Ahead: The EU trade chief stated today that it is a top priority for Europe to avoid a trade war after a four-hour meeting with U.S. officials. It appears the EU may consider purchasing more natural gas from the United States in exchange for both sides to agree to reduce tariffs. The final results of these negotiations remain to be seen, as nothing has been officially published or agreed to. Moving forward, a key factor in the success of a U.S.-EU tariff ceasefire will be whether or not the trade deficit is an important sticking point.

Upcoming Tariffs:

March 4: 25-percent tariffs on all imports from Mexico and Canada would take effect.

March 12: 25-percent tariffs on steel and aluminum tariffs would take effect.

April 1: Target date for USTR trade policy review and recommendations.

Unspecified Date: Various tariffs on pharmaceuticals, semiconductors, automobiles, copper, the EU and BRICS countries.