The 15% Tariff A Modest Jolt Or Deeper Disruption?

By Louis Garguilo, Chief Editor, Outsourced Pharma

Regarding the U.S. and European Union “agreement” to a blanket 15% tariff on pharmaceuticals entering the former from the latter, I’m going to zero in on potential effects of outsourcing active pharmaceutical ingredients (API).

A 2025 analysis from the U.S. Pharmacopeia indicates that 43% of branded pharmaceutical APIs used in U.S. prescriptions come from the E.U. (Generics are more India-centric.)

As analyzed and reported in Reuters and elsewhere, Europe accounts for over 60% of all U.S. pharmaceutical imports by value.

Back to the tariff itself, the 15% rate appears to have essentially capped (at least for now)  the more draconian levels earlier threatened by President Trump. (Note: generic pharmaceuticals remain exempted (and covered under the Most-Favored-Nation (MFN) drug-pricing rate.) 

When the tariff dust settled in August, there was a whiff of relief (if not capitulation) – on both sides of the Atlantic.

So what’s it mean to your development and manufacturing outsourcing as you utilize CDMOs in various jurisdictions?

A Tariff Case Study

Let’s say you are a U.S.-based biopharma organization. Your precursor materials orginate in China (or India) and get shipped to your CDMO operating in Europe to manufacture your API. Once completed there, it’s off to a fill-finish facility in the U.S., and readied for use in the clinic or commercially.

The 15% tariff is applied, in tariff parlance, when the covered good originating in Europe crosses into the U.S., where U.S. Customs and Border Protection (CBP) assesses the tariff on the declared value of that specific shipment.

In other words, the tariff is for you the sponsor to pay up, as the legally responsible Importer of Record (IOR) from the CDMO.

However, if your European-based CDMO arranges shipping “delivered duty paid” (DDP), then the CDMO might have initially paid the duty, and will typically pass the cost through to you.

And thus, all tariffs and (and taxes) should be included in contract negotiations with your CDMOs, and they should involve finance, legal, regulatory, and other parts of both companies.

Sponsors today will further scrutinize Incoterms (FOB, CIF, DDP, etc.) to clarify who and how to absorb the 15% tariff in new contracts. Current contracts may also need amendment.

Ultimately, though, the U.S. sponsor will suffer a higher cost of goods.

Finally here, once the API has cleared U.S. customs and the tariff is assessed, there is no further tariff when, for example, your U.S.-based fill-finish site completes the drug product and it is distributed within the U.S.

Few Alternatives In A Tariff Regime

Hard to do, but let’s continue to blot out the politics and market-fairness issues involved, and stick to the crux of the matter: more expensive drug substance and drug product outsourcing.

Will 15% push U.S.-based biotechs to seek non-E.U. outsourcing alternatives for API, starting of course, with CDMOs operating in the U.S.?

In this case, for a U.S.-based CDMO that still has to import raw materials and intermediates, chemical precursors, or bulk APIs from China, India or elsewhere, those shipments are subject to the tariffs that currently apply under U.S. law.

For example, many chemical precursors and pharma-related inputs from China remain under Section 301 tariffs (10–25%) introduced during the earlier Trump administration (although some were paused and this still seems in flux).

For India, the U.S. generally imports pharmaceutical ingredients with little or no tariff. Many APIs and intermediates from India carry a 0% MFN duty (as mentioned above). However, as we stand today, tariffs on India appear to be rising.

So, for example, a new calculus becomes: 

Is a 10–25% tariff on Chinese intermediates shipped to your CDMO in the U.S., who then calculates that as part of  the price of your API, riskier than a guaranteed 15% tariff on a finished E.U. API?

Sponsors – and CDMOs – will increasingly need to conduct what we might call tariff engineering analyses when selecting supply chain routes that minimize costs of goods.

What Will The CDMOs Do?

Some CDMOs based in Europe (or elsewhere) have already undertaken new or additional investments in U.S. territory.

The broader trade deal President Trump made with Europe includes massive E.U. commitments to purchase U.S. energy, and invest in U.S. industries, to the tune of and estimated $600 billion by 2028. 

Also, could we see a shift (in some cases back) to countries in Asia?

If CDMO margins get squeezed to stay cost competitive – and as crazy as this would have sounded just months ago – some CDMOs may pivot toward generics as a focus.

We can be skeptical of this last eventuality, but such flows would certainly benefit the U.S. manufacturing infrastructure that's been in focus since COVID.

Overall, for biopharma sponsors, the CDMO selection process, supply chain analysis, and the exercise of calculating and paying new tariffs will add time, stress, and costs to drug substance and drug products.

Yes, U.S.-based CDMOs were already licking their chops over the intensifying focus on reshoring and domestic production post-COVID.

But you know what?

We may actually get a lot of this from drug developers:

“We’re just glad its over and we know the rate. So what are going to do? Nothing fundamentally changes.”

Theoretically, prices will elevate once for E.U.-based API production, and the industry will then operate within those new benchmarks.

Even Jerome Powell, Federal Reserve Chairman, after predicting much dire consequences to the economy and inflation due to these new tariffs, said in his anticipated Jackson Hole speech in August, “A reasonable base case is that the effects [of tariffs] will be reasonably short  lived – a one-time shift in the price level.”

Hopefully, most of this transition is over, but among others, a lingering concern is we get washed over with more tariff waves in the future.