Why tariffs could fuel a new era of domestic pharma manufacturing

By Tiffany Brewer

For years, the pharmaceutical industry has leaned heavily on global suppliers to cut costs and keep materials flowing. But with new US tariffs looming, that strategy is starting to look increasingly risky. What once felt efficient and diversified now feels exposed. The industry is taking a hard look at reshoring and nearshoring. It won’t be a simple or swift shift, but the long-term impact on supply chain resilience, patient access and competitive edge will be hard to ignore.

In April 2025, President Trump signalled his intent to impose sweeping tariffs on the sector, a development that ‘could end decades of low-cost global trade in medicines’, according to media reports at the time. Clearly, the US currently has a significant trade deficit in pharmaceutical products – over $115bn according to reports, with Ireland, Switzerland, Singapore, India and Germany among the countries most exposed. The speculation is that the level of tariffs could be similar to the 25% faced by the steel, aluminium and car import sectors and could ‘increase US drug costs by nearly $51bn annually, boosting US prices by as much as 13% if passed on’.

But here’s the catch: due to insurance and pricing structures, most pharma companies won’t be able to pass costs on to consumers – not right away, anyway. That puts generic manufacturers in a bind. Analysts warn we could see reductions in R&D, lay-offs and more aggressive pricing negotiations as profitability takes a hit.

According to analysis published by Reuters, US pharmaceutical companies are expected to absorb the immediate costs of proposed tariffs on drug imports – rather than passing them on to consumers – due to existing insurance structures and pricing constraints. However, analysts warn that these tariffs could significantly impact the profitability of generic drugmakers, potentially leading to cost-cutting measures in research and staffing, and may eventually prompt broader pricing negotiations to address disparities between US and international drug prices.

‘The long-term impact of US tariffs on supply chain resilience, patient access and competitive edge will be hard to ignore’

As of early June, it remains uncertain when tariffs will be announced, what specific products they will target and how extensive their impact will be across the pharmaceutical supply chain. For now, much of the industry remains in scenario-planning mode – stress-testing cost models, mapping vulnerabilities and reassessing sourcing strategies.

The parts of the supply chain most vulnerable to tariffs are also among the most critical – APIs and raw materials, many of which originate in China or India, are prime candidates for disruption. Add packaging and contract manufacturing into the mix, and it’s easy to see how cost pressures could escalate quickly.

Beyond price increases, pharmaceutical companies face another major constraint – time. Regulatory requirements make switching suppliers anything but quick. Unlike other industries, pharma can’t simply reinvent its supply chain or relocate production in response to trade shifts. Every new manufacturer must be vetted, approved and brought into compliance – a process that often takes years. Most companies don’t have that kind of runway when margins are tight or inventories are shrinking. For many, this makes rapid change nearly impossible and underscores the need for long-term strategic planning.

The challenges also extend far beyond raw costs. Some organisations may look to delay procurement or scale back production in the hope that trade conditions improve. But this strategy is a gamble, particularly in a market already dealing with long-standing shortages of oncology treatments, cardiovascular drugs, antibiotics, ADHD medications and GLP-1s.

Drug shortages often begin when contract manufacturers decide it’s no longer financially viable to keep producing certain products. Tariffs could be the tipping point – pushing already marginal therapies past the threshold of profitability. And in pharma, raising prices isn’t always on the table. Regulators and insurers frequently cap what manufacturers can charge. The result? Sustained shortages if products become too costly to make. If tariffs stack on top of already thin margins, more drugs could fall into this category – further limiting access for patients worldwide.

So what’s the path forward? One option gaining traction is nearshoring. The pitch is simple – more control, shorter transport timelines, less exposure to geopolitical shocks.

It’s an option that’s quickly becoming a serious strategic consideration. From US tax credits to EU initiatives under the European Health Union, incentives are building for domestic or regional pharmaceutical production. COVID-19 exposed the cracks. Now, countries want to future-proof their drug supplies.

Beyond the economics, there are also practical benefits. Shorter supply routes reduce logistics costs, while manufacturing closer to home increases agility, helping companies respond more quickly to shifts in demand. And crucially, nearshoring can improve resilience at a time when geopolitical and environmental disruptions are becoming more frequent and more severe.

But the obstacles are real, too: with higher labour costs, scarce high-skilled talent and limited contract manufacturing capacity, companies may find it difficult to justify the investment levels required, especially for low-margin or high-volume products.

There will also be other issues to address. In some geographies, labour shortages in high-skilled manufacturing roles could slow progress, as could the lack of scalable contract manufacturing capacity outside established offshore hubs. There’s also the issue of scale – domestic set-ups may struggle to match the economies of scale found in Asia’s large pharma operations.

For companies weighing their options, careful scenario planning will be essential. Choosing the right location means assessing everything from local workforce availability and IP protections to transport infrastructure and regulatory alignment.

Here’s where digital transformation stops being a buzzword and starts being survival strategy.

Automation helps bridge the cost gap – cutting labour requirements, reducing error rates and tightening compliance. And platforms that support real-time planning, scenario modelling and predictive forecasting are no longer optional – they’re essential.

Companies want to know where their exposure is? Whether their current suppliers can absorb tariff impacts? Or if shifting to a nearshore model would be beneficial in the long run? These are complex questions – but today’s tools can answer them in hours, not weeks.

The difference-maker is visibility that drives action – not just dashboards, but autonomous decision-making. The companies that win will be those who can model, test and adapt at speed.

In reality, the industry is still in early response mode. With tariff details yet to be confirmed, most organisations are focused on scenario planning, mapping out contingencies, modelling different sourcing routes, and assessing the operational and financial implications of each option. While the industry waits for clarity on policy timelines, whatever happens next, what is certain is that the conversation has changed.

Of course, this isn’t the first major disruption pharma has faced and it won’t be the last. From COVID-19 and raw material shortages to geopolitical instability, supply chain volatility is becoming the norm rather than the exception. Whether this is another black swan event or simply the latest in a long line of disruptions that demand a more proactive, resilient response remains to be seen. Whatever happens next, the era of defaulting to low-cost offshore supply chains may be coming to an end. In its place, a more balanced, resilient and regionally distributed model could emerge if the industry is ready and able to invest for the long term.

Tiffany Brewer is Senior Director, Global Industry Strategy – Life Sciences at Blue Yonder