What If The Trump Tariff Strategy Works?

By Louis Garguilo, Chief Editor, Outsourced Pharma

Doom and gloom in the drug development and manufacturing supply chain.

Predictions of disruptions and displacements. Near universal pundit assurances the Trump Tariff ploy will fail. Costs and prices will skyrocket.

Risk-assessment planning in. Nights of peaceful sleep out.

But have you considered this “risk”?

The tariff tantrum ends up lowering national export/import duties for the entire globe.

In our world of outsourcing (and importing/exporting) a long chain of services, materials and product, is anyone considering this outcome? Should you be?

Readers know I’m willing to take the “other side” of a developing narrative. A prime example is the series of editorials on the BIOSECURE Act. And very thankfully, readers faithfully read and were open to the discussion.

Those editorials were a forceful but measured disagreement with the Act itself. In effect, we were sticking up for one of our own – a CDMO that was seemingly thrown into a potential law where it did not belong.

While quite different, I now have a similar feeling it’s again time to take a look at the other side. The scale has been weighted almost exclusively on the side of Trump-tariff despondency.

Have You Asked These Questions?

Consider:

• How would your outsourcing be impacted if six months from now global tariffs related to U.S. export/import have been drastically lowered? Including with China.
• What risk might you incur if most all nations eventually do a “deal” with President Trump to lower tariffs/trade barriers – other than China?

The current consensus is neither happens. This all turns out poorly.

The consensus could be wrong. Our questions here do not pose scenarios out of the realm of possibility. Unfortunately, though, such outcomes are being considered as some form of a Black Swan.

But I’d submit that’s wrong, mostly because if given the light of day, positive outcomes are indeed foreseeable and forecastable. How about these questions should there be broad agreements to lower tariffs:

• Would the supply chain become more fluid, competitive … and offer far better pricing to biopharma sponsors?
• Would development and manufacturing outsourcing, instead of being disrupted or even contract (as some are currently anticipating) actually increase in volume and frequency?

Here’s an interesting outlier:

• If prices are reduced by way of fewer nation-to-nation trade barriers, would your concerns for “pricing” fall to the bottom of your CDMO selection scale, and quality, reliability, flexibility, relationships and longer term partnerships gain even more influence?

In other words, might a Trump tariff triumph (of some kind) do for our supply chain what drug sponsors have always wanted?

What If The Expected Happens?

Of course, as is so expected, this tariff tantrum could fail, and promulgate higher trade barriers and higher prices (and other repercussions).

Would this induce supply-chain gyrations on your part?

Perhaps not.

If on a relative basis, the cost of cross-border outsourcing for all locations is elevated, what action is there to take? Outsourcing uniformly grows more expensive. At least from the point of sheer costs/pricing, a move from one locale to another might prove meaningless.

In this case, somewhat paradoxically, to offset higher prices, might sponsors demand more of their CDMOs? Such as even higher quality standards, improved customer service, and more flexible scheduling?

Once again, I’m hoping readers will think orthogonally with me.

Of course a failed Trump-tariff policy will materially and negatively affect the world in ways and degrees well beyond our focus on development and manufacturing outsourcing.

Understandably, all of those unfortunate possibilities have led to the nearly one-sided pessimism that prevails as I write this.

No one likes chaos in our national relationships, global economies, our supply chains and markets, within our business models, or our external partnerships.

For us, biopharma sponsors nor CDMOs have a choice other than to follow the situation carefully, even as it evolves and devolves on a daily news-cycle basis.

But everyone might do well to consider all potential outcomes.

I’ll Reshore, Or Build Here

Finally for this first tariff thrust, and as readers have certainly had in mind here, what of the other tariff-policy rationale that directly relates to our industry, namely the reshoring of U.S. supply chains, particularly manufacturing.

Will those sponsors with the financial wherewithal decide to build internally (and in the U.S.)? We’ll look at this subsequently, but for now let's stay with these questions:

With today’s reality (or specter) of tariffs, will biotechs begin to more heavily weigh the selection of U.S.-based CDMOs over those in other locales?

It’s a question that echoes those we’ve asked at OutsourcedPharma.com in the past on whether (a) there are enough CDMOs in the U.S., (b) they have sufficient capacity and the requisite capabilities, and (c) if there’s the skilled workforce to take on an onslaught of new work.

Important to point out our past discussion was practically delimited to China vs. U.S. The consensus on that has been “no” on all counts.

If that is more truth than speculation, would we see a rash of CDMO start-ups, and a build out of capacity at existing CDMOs?

In other words, would sustained high tariffs and stiff trade barriers benefit U.S. CDMOs?

Even if the answer here is “yes,” at least for quite the foreseeable future we’d still need raw materials and so many other ingredients from outside the U.S. that by necessity we’d maintain a global supply-chain component.

There are more caveats and considerations to all the above.

But again, what if Trump prevails and global tariffs/trade barriers are demonstrably diminished?

What will that do to reshoring?

If – even omitting China for the moment – CDMOs around the globe receive freer export/import access to the U.S. (and vice versa), and considering in many cases already lower labor costs offshore, would that encourage biotechs to outsource more in the U.S.?

For reshoring and the domestic supply-chain, could a tariff win actually be a U.S.-based CDMO loss?

A lot of questions – on both sides of the tariff paroxysm. More on this from me and others to follow here at OutsourcedPharma.com.