Biopharma Industry: Exempt From Global 10% Tariff, but We Still See Margin and Tax Rate Risks

On April 2, President Donald Trump announced a 10% tariff on imports from all countries, effective on April 5. However, pharmaceuticals appear to be among the exemptions listed in the full executive order, as part of Annex II.

Why it matters: The biopharma industry has been sheltered from tariffs for decades, including during the first Trump administration, but investors had been concerned about potential global tariffs, as the industry has significant manufacturing in European countries like Ireland, Germany, and Switzerland.

• With roughly $200 billion in pharmaceutical imports in 2024, a 10% tariff could amount to a $20 billion headwind across the industry, with the biggest firms seeing potential annual tariffs as high as $1 billion.
• Previously implemented tariffs on pharmaceutical imports from China (raised from 10% in February to 20% in March) appear manageable for branded biopharma, due to limited manufacturing in China, and pharmaceuticals are generally exempt from Mexico and Canada tariffs (25%, March 2025).

The bottom line: We think a future global pharmaceutical tariff is still a risk and could pressure gross margins and increase long-term tax rates. However, we expect firms to be able to adapt their manufacturing, and nearly all large-cap biopharma firms continue to hold wide economic moats.

• On margins, we could see near-term pressure from tariffs and long-term pressure from additional investment in US manufacturing facilities, which are not likely to receive approval for several years, even assuming US Food and Drug Administration inspections stay on track following staff reductions.
• With increased US manufacturing, we expect tax rates could begin to rise closer to the current 21% US corporate tax rate, a level we assume will be maintained as Trump aims to extend his tax cuts via the reconciliation process in the Republican-controlled Congress.