BDO’s 2025 Pharmaceutical Tariffs Update

Amid rising R&D costs, strict regulatory requirements, and intense pricing pressures, pharmaceutical companies face yet another challenge: tariff uncertainty.

In September 2025, President Trump threatened triple-digit tariffs on branded pharmaceutical imports. The administration then paused these plans to negotiate agreements with large pharmaceutical companies for exemptions on their name-brand products. Questions remained over tariffs on generic drugs before a spokesperson clarified that the administration was not actively considering tariffs on generics. 

In response to these proposed tariffs, pharmaceutical companies are exploring several tariff mitigation strategies. However, many companies are wary about executing any long-term strategy based on tariffs that may change.

Tariff Mitigation Strategies: Stockpiling vs. Building U.S. Manufacturing Capacity

There are two common strategies that many pharmaceutical companies consider to manage tariff challenges: stockpiling and building U.S. manufacturing capacity.

Stockpiling refers to relocating finished products and APIs to the U.S., rather than storing them in other countries. For this strategy to be effective, pharmaceutical companies need to move materials to the U.S. before the tariffs go into effect.

Building manufacturing facilities in the U.S., on the other hand, makes it possible for pharmaceutical companies to manufacture products domestically, simplifying supply chains and regulatory compliance while avoiding tariffs. Given the extensive resources required to execute this strategy, it is only cost-effective if domestic manufacturing can provide value beyond simply tariff avoidance. 

The table below outlines the benefits and challenges of each strategy in greater detail.

Stockpiling vs. Building Manufacturing Capacity

While both stockpiling and building manufacturing capacity can provide substantial benefits to pharmaceutical companies, they also come with clear risks and costs that may outweigh any savings. To understand whether these strategies are viable options, pharmaceutical companies need to turn to scenario modeling.

Understanding Potential Impacts with Scenario Modeling 

Scenario modeling allows companies to assess the implications of different tariff environments, as well as how a variety of strategies — like stockpiling and building domestic manufacturing capacity — could affect finances and operations. This exercise helps companies forecast not only immediate impacts, but also downstream effects to manufacturing timelines and costs.

Consider a company that produces a branded cardiovascular medication and achieves $2.5 billion in annual revenue. This company currently sources all of its active pharmaceutical ingredients (APIs) from India and China, with final manufacturing split between facilities in Mexico (50%), Ireland (40%), and the U.S (10%). 

As soon as the Trump administration announced the possibility of 100% tariffs on imported branded pharmaceuticals, the company took to scenario modeling to understand how their costs would change. Based on the above information, the model identifies how much of their finished product would be subject to tariffs (90%), as well as how much they would pay in tariffs on the imported APIs from China and India for the 10% of product that the U.S. manufactures domestically.

Once the company understands their expected cost increases, they can analyze the impact of possible tariff mitigation strategies. For example, if the company decides to stockpile the finished product as well as APIs before tariffs go into effect, the model can determine:

• The potential impact on costs, both in terms of savings from tariff avoidance as well as additional costs associated with moving and storing the finished product and material
• The risks the company is most likely to face, including potential impacts to cash flow based on demand forecasts, expiration date timelines, and new accounting and tax requirements
• Short- and long-term changes the company would need to implement to mitigate potential challenges and the feasibility of these changes
• Overall impacts to EBITDA and COGS over the next one, three, and five years.

Based on this information, the company could determine whether stockpiling would be an appropriate response to the proposed tariffs.

Scenario modeling requires significant investment, not only in terms of technology, but also in the time and effort required to use it effectively. Companies that do not possess the right skills internally may consider working with a supply chain advisor who can conduct a comprehensive supply chain analysis using advanced modeling. 

Looking Ahead

Tariff uncertainty is driving pharmaceutical companies to focus on risk mitigation, redirecting resources from research and development, supply chain improvements, and innovation. As a result, we expect to see upward pressure on drug prices and greater hesitation from potential investors. 

The pharmaceutical industry is proactively raising this issue with policymakers, which has resulted in some adjustments to planned tariffs. For example, the industry’s concerns around the financial infeasibility of manufacturing generics in the U.S. resulted in lawmakers instituting a tariff exemption. Further tariff adjustments are likely, as the industry continues to address these challenges with policymakers. Pharmaceutical companies should not assume that tariff policies will remain static when conducting their scenario planning. 

The Trump administration may also be interested in negotiating lower drug prices with pharmaceutical companies in exchange for tariff protection. The administration recently announced a deal to afford tariff protections to a drug developer in exchange for aligning drug prices with the lowest prices paid in other developed nations. The agreement primarily applies to state Medicaid programs and through a new direct-to-consumer website.