In the face of Trump’s impending tariffs, Europe has been mulling over the best course of action to protect its industries.
The European pharmaceutical industry has appealed to Brussels to not retaliate if the impending tariff threat falls on imported drugs.
The concern arose from Trump’s announcement last week that tariffs were coming “very soon” as well as the strategic advantage such a move would gain him ahead of the self-imposed 9 July trade deal deadline. However, the EU has been granted an extra three week reprieve to negotiate the deal.
The current speculated shape of the deal includes automobiles and steel — which had higher levies imposed on them — but no mention of pharmaceuticals as of yet.
Last week HBI covered how vulnerable branded pharmaceuticals would be if US tariff threats were enforced. At that time, Trump had threatened tariffs of up to 50% on all EU imports, prescription drugs included. European businesses have been paying a 10% tariff on goods sold to the US since April.
Additionally, we covered how the share price of European pharma companies such as AstraZeneca and GSK have been impacted by the introduction of the Most Favoured Nation (MFN) rule, which links US drug prices to the lowest prices paid by comparable wealthy nations and raises concerns that companies might increase prices elsewhere to offset losses in the US market.
Diederik Stadig, an economist working for multinational bank ING, told HBI:
“Trump has given branded drug manufacturers a lever to pull in negotiations with European states, as MFN and tariffs would add inflationary pressure. However, the effect will be limited because drug prices are mostly negotiated by national healthcare insurers, not at a European level. The decentralised process dampens the impact of MFN, and price agreements tend to be strict and long-term, so any effect would likely be medium-term.”
President of the European Federation of Pharmaceutical Industries and Associations and member of the board of management at the German pharmaceutical company Bayer, Stefan Oelrich appealed to Brussels last Thursday, saying:
“We’re shipping a lot of exports out of the US into Europe. If we add tariffs to that, it’s going to be negative for both sides. If we reciprocate on tariffs, it’s just a bad idea. It’s a bad concept.”
EU countries have different strategies when it comes to dealing with the US. While France and Germany prefer a “quick and simple” trade deal, Baltic nations prefer to build a more amiable relationship with the president’s support of Ukraine in mind. Last week, the Trump administration floated a possible 17% tariff on EU agricultural products and food and drink imports, a decision that would negatively impact Ireland, France and Italy.
“There’s no specific ask [of the US] other than … to the degree possible to limit trade barriers to zero, which would be the ideal case for us and/or something similar to zero,” Oelrich said.
“Tariffs will increase the cost of medicine and care. Tariffs will also create, ultimately, higher costs to patients.”
Oelrich also hinted that reforms on financing, pricing and regulations of drugs may help restore Europe’s lead in drug research and development, currently held by the US. He cited the fact that one out of four drugs approved by the US FDA have not made it to the EU due to differences in national regulations and pricing.
The issue has become more urgent as Trump threatened a 200% tariff on pharmaceutical imports, to be enforced after a one year grace period.
With the final state of the trade deals now uncertain until the 1st of August, some have warned investors to re-align their portfolios to focus on resilience through the uncertain 18-month transition period ahead of them.
Pharma companies, however, have had a pleasant surprise as their shares traded with gains even after the new tariff threat, with shares of Lupin, Biocon, Aurobindo Pharma and Laurus Labs seeing increases of up to 1.5%.