Guest Post: Putting the “harm” in Pharmaceuticals – evaluating President Trump’s proposal of 100% tariffs
This is a guest post from Simon Schropp (BRG and George Washington University)
On Friday, September 25, 2025, President Trump – characteristically in a post on Truth Social – announced his intention to impose a 100% tariff on any branded/patented pharmaceutical products imported into the United States, unless the manufacturer “is building” a US plant (defined as at least “breaking ground”/“under construction”). The tariffs are to enter into effect today.
Also characteristically, the post is lacking critical details. Unclear are, among others, the legal basis for such tariff increase, the definition of “branded/patented”, or the exact product coverage. Furthermore, we don’t know how this pharma tariff interacts with other announcements made in recent past, for example, the trade “deal” with the European Union (that appears to come with an across-the-board import tariff of 15% on imports from the EU).
Despite the lack of details, we believe it to be worthwhile to have a rough idea of the implications that such a unilateral tariff increase would have on both the US and EU economies. After all, access to life-saving medicines affects us all.
Applying a model developed by the authors,[1] we focus here on the EU as the main exporter of pharmaceuticals into the United States. We model two scenarios: a prohibitive 100% tariff and a more moderate 15% tariff consistent with what we know so far of the US-EU trade “deal”. To keep things simple, we model a tariffs across all pharma products (Chapter 30 of the Harmonized System) imported from the EU.[2] Figure 1 summarizes our high-level findings.
Figure 1: Total economic effects of a 100% and a 15% tariff on EU pharmaceuticals
Table 1 presents model results on a sectoral level for a 100% tariff. The results are stark:
- Our model predicts that a 100% tariff on EU pharmaceutical products would effectively eliminate imports from the EU. Using 2024 figures, this would mean the end of imports worth $127B.
- The aggregate welfare effect of such pharma tariffs on the US economy would be significant. Summing up all rows in column 5, we find that direct welfare losses to the US economy of over $33B.[3] In economic terms, welfare losses mean that consumers pay more and enjoy less product variety, an inefficient allocation of productive resources, and lost tariff revenue.
- Interestingly, the economic hit to the US economy exceeds that of the EU, by about $3B (see rightmost column). This can be explained by the fact that in many pharma sectors EU imports make up for a considerable percentage of overall imports (column 4 of Table 1). US consumers cannot easily substitute for lost EU imports by switching to other import sources.
The losses we measure are unlikely to be made up anytime soon by EU pharma companies “building” U.S. plants.[4] First, there is the question of whether EU pharma companies would consider relocating manufacturing to the US in the current political climate. Next, building manufacturing plants from scratch takes years. And that doesn’t even factor in the permitting process for pharmaceutical production, which, one must assume, would take longer with a defunded and overstretched US Food and Drug Administration and ever tighter investment controls imposed by the US Government.
The specter of 100% tariffs on pharma products gets all the more puzzling when contrasted against what appears to be the most likely status quo according to the US-EU trade “deal”, namely a flat tariff rate of 15%.[5] Table 2 provides sector-level results of a 15% scenario:
- The US economy stands to gain $5.6B. These economic gains can be explained by the US using its market power to shift a good deal of the tariff incidence onto the EU. EU exporters must accept lower world prices for their goods (so-called terms-of-trade deterioration). This means that EU exporters are forced to absorb much of the tariff, i.e., they are less able to pass on higher tariffs to US customers. Additionally, the US Government would collect an additional $28B in tariff revenue.
- Next, the US welfare gains of $5.6B would stand in contrast considerable welfare losses of approximately $8B to the EU economy.[6]
In sum, the realization of Donald Trump’s idea of a 100% tariff on pharmaceuticals are economically destructive and politically questionable, whereas a 15% tariff would deliver net gains to the U.S. economy. The results we reported are conservative. First, and most importantly ours is a trade model that does not factor in the grim impact that a denial of access to IP-protected EU pharmaceuticals could have on US public health in terms of everything from longer and less effective convalescence, additional pain and suffering, and even premature deaths. Second, the model implicitly assumes that tariffs are imposed only on the EU which implies that US consumers can switch to products from elsewhere. However, judging from his Truth Social post, President Trump’s intention is to impose pharma tariffs on every trade partner. Consequently, US consumers would not easily be able to substitute for EU products, which naturally increases consumer losses and allocative inefficiencies. Finally, our model results do not include any indirect or knock-on effects on the US economy (for example losses to US importers, wholesalers, and pharmacies).
Unlikely as it seems, the EU could respond to Mr. Trump’s attack on EU pharma exports by imposing its own tariffs on pharmaceuticals “made in the USA”. This would inflict considerable economic pain, albeit this time affecting US pharma exporters. For example, our model indicates that a retaliatory EU tariff of 15% on US pharma products would result in welfare gains of $5.5B to the EU while causing $5.8B of economic harm to the US economy.
Disclaimer
The opinions expressed in this publication are those of the author and do not represent the opinions of BRG or its other employees and affiliates. The information provided is not intended to and does not render legal, accounting, tax, or other professional advice or services, and no client relationship is established with BRG by making any information available in this publication, or from you transmitting an email or other message to us. None of the information contained herein should be used as a substitute for consultation with competent advisors.
[1] Latipov, O.; C. Lau; K. Mahlstein; S. Schropp (2023); “Quantifying the Impact of the Latest US Tariff Sanctions on Russia: A Sectoral Analysis”, Journal of World Trade Vol. 57(1): 55–124.
[2] We appreciate that our approach is crude, not least since Mr. Trump’s contemplated tariffs are limited to branded products and, if enacted, would not be imposed on the EU alone, but on importers worldwide.
[3] Our model results come with the caveat that the imposition of tariffs conceived by President Trump constitutes a policy change of a magnitude not typically contemplated in standard tariff analysis. In technical terms, the assumed 100% tariff challenges the model’s assumption of constant elasticities, and therewith may bias the outcomes.
[4] The alternative of EU companies granting licenses to US producers does not appear to be contemplated by Mr. Trump, because licensing does not involve “breaking ground” by foreign pharma companies.
[5] Note that a 15% flat tariff on pharmaceuticals constitutes a considerable increase compared to US tariffs applied today. Presently, the majority of EU pharma products enjoy tariff-free access to the US market.
[6] EU welfare losses are composed of price decreases that EU drug makers have to accept to keep a foothold in the US market (a terms-of-trade deterioration), as well as production inefficiencies resulting from selling fewer goods to the US.
Table 1: Economic effects of a 100% tariff on EU pharmaceuticals
Sources: UN WITS (latest available bilateral trade-flow data).
Notes: US tariffs of 100% on EU imports are assumed; a policy shock of magnitude that challenges stretches the model assumption of constant elasticities, and therewith may bias the outcomes; welfare gains/losses are measured as the sum of terms-of-trade gains/losses, efficiency losses from inefficiently low import/export levels, and losses from inefficient resource allocation; for more information on model methodology, see Latipov et al. (2023).
Table 2: Economic effects of a 15% tariff on EU pharmaceuticals
Sources: UN WITS (latest available bilateral trade-flow data).
Notes: US tariffs of 15% on EU imports are assumed; welfare gains/losses are measured as the sum of terms-of-trade gains/losses, efficiency losses from inefficiently low import/export levels, and losses from inefficient resource allocation; for more information on model methodology, see Latipov et al. (2023).