By Andrew Rechenberg
Rebuild U.S. production and cut out the middleman. That’s why tariffs matter.
America’s medicine cabinet is too important to leave to the mercy of subsidized foreign suppliers and fragile supply chains.
Lobbyists in Washington are at it again. They’re warning of calamity if the Trump administration imposes Section 232 tariffs on imports of prescription generic drugs. They tell us that consumers will face higher prices. But the scare stories don’t hold up – especially for the generics that make up 90% of U.S. prescriptions.
The problem America faces is that U.S. patients are now dangerously dependent on foreign suppliers. China controls up to 90% of the global supply of active pharmaceutical ingredients (APIs) – the chemical building blocks of modern drugs. And India produces roughly half of America’s generic medicines.
China and India didn’t get into this position because of greater efficiency. Instead, the medicines they export are low cost due to subsidies, weak labor standards and unsafe production. U.S. drug producers are unable to compete, leaving America’s drug supply chain ever more exposed to unsafe imports.
Generic-drug imports from India are plagued by safety risks.
What’s deeply concerning is that generic-drug imports from India are plagued by safety risks – and 54% more likely to cause severe adverse events than domestically produced drugs. India’s supply chain also remains reliant on China for 80% of its APIs – something that has created worrisome bottlenecks. U.S. cancer patients learned this recently when a single overseas plant shut down, creating nationwide shortages of a key chemotherapy drug.
This heavy import dependence for essential medicines is now a national-security problem. The answer is to rebuild U.S. production. That’s why tariffs matter.
Tariffs can correct these distortions. One proven tool is a tariff-rate quota (TRQ) – something that’s already used in agricultural and steel trade agreements. TRQs allow a set volume of imports from certain countries to face a low tariff. But they also impose higher rates on additional imports above the base volume. Applied to pharmaceuticals, TRQs would allow for continued imports from safe, trusted producers – such as the E.U., U.K. and Switzerland – but impose higher tariffs on pharmaceuticals from China and India.
The U.S. Commerce Department would set these quotas and tariff levels under Section 232 of U.S. trade law, and subsequently adjust them as needed. Phased in, these TRQs would maintain a steady supply of generic-drug imports from safer countries while signaling to investors that investments in domestic production will be protected.
Cut out the middleman
Middleman profiteering – not tariffs – is the real problem.
Critics inevitably claim that tariffs raise prices. But a recent Coalition for a Prosperous America report shows why tariffs on prescription generics don’t reach consumers.
Researchers at the University of Southern California found that of every $100 spent on generic drugs, just $36 goes to production and manufacturing. The rest go to middlemen – pharmacies, pharmacy-benefit managers (PBMs), wholesalers and insurers. But tariffs are only applied to the $36 slice. The costs of these tariffs are quickly swallowed up by middleman profits.
Moreover, no matter a drug’s final price, the patient copay remains the same. In part, that’s because Medicare and Medicaid automatically reset reimbursement when costs change. And commercial health insurers spread these adjustments across millions of patients. There’s even Medicare Part D, which will soon cap out-of-pocket patient spending at $2,000 a year.
This is why the patient still pays the same copay. It’s also because of the profitability of the middlemen who dominate the process. Three hospital purchasing groups and three wholesalers each control about 90% of their respective markets. They pit 200 U.S. manufacturers in a price battle against cheap, unsafe imports from India and China.
All of these middle steps and add-ons make clear that America’s generic-drug-market pricing is dominated by middlemen controls – something that should be addressed by Federal Trade Commission action.
Even the new “Make America Healthy Again,” or “MAHA,” initiative has acknowledged this problem. President Donald Trump and Health and Human Services Secretary Robert F. Kennedy Jr. have launched a crackdown on misleading pharmaceutical advertising – and have called out PBMs as “horrible middlemen” that distort drug prices. That should reinforce the obvious: Middleman profiteering, not tariffs, is the real problem.
Under a tariff-rate quota system, in the short run, America’s generic-drug supply would shift to European exports. They’re admittedly more expensive than Indian or Chinese generics at a base level – but they’re also safer and more reliable. Regardless, the modest price increases of these imports would be absorbed by middlemen eager to maintain their profit margins and acting under the scrutiny of the FTC. In fact, pharmacy-chain profit margins currently average more than 40%. PBMs enjoy markups on generics of hundreds – and sometimes even thousands – of percent.
Meanwhile, patients are shielded from higher prices by set copays, out-of-pocket maximums and automatic Medicare/Medicaid adjustments. Over time, and as U.S. facilities come online, economies of scale and advanced manufacturing processes would help domestic firms steadily lower costs. At that point, tariffs would function only as a guardrail against future imports that are subsidized or dumped.
The goal is to incentivize new domestic production through tax and production credits plus advanced manufacturing grants. Within a few years, scale and continuous technology would close any cost gaps.
America’s medicine cabinet is too important to leave to the mercy of subsidized foreign suppliers and fragile supply chains. Section 232 tariffs in U.S. law exist for exactly this reason: When imports undermine national security, policymakers must act. Tariffs on generic drugs aren’t a tax on patients – they’re a down payment on secure medicines and resilient supply chains.
Andrew Rechenberg is an economist at the Coalition for a Prosperous America.
Also read: This one move could give Trump a win on global tariffs – and calm the bond market
-Andrew Rechenberg
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09-13-25 1054ET
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