The United States now faces considerable challenges in building a strong pharmaceutical manufacturing base. Soaring labor and production costs put Asia, Latin America, and Ireland at a distinct advantage. Recent tariffs on materials that are core to production have only made this more difficult. The new 25 percent tariff on steel, a primary material in industrial construction, will only exacerbate soaring construction costs on site. This increase in costs will further complicate efforts to accelerate the expansion of domestic manufacturing capacity.
As the U.S. strives for strategic autonomy in pharmaceutical manufacturing, experts suggest that the current economic landscape presents formidable barriers. Those impacts combined with the high costs of labor and production in the U.S. compared to its global competitors make it difficult for the U.S. to compete. Moreover, the tariffing of essential materials—like steel—puts increasing pressure on construction budgets of new facilities.
Labor and production costs are inflated in the U.S., compared to countries like India and China. The reality is that labor costs in the U.S. are higher than those in India and China. This gap poses a major financial barrier for firms seeking to invest in domestic manufacturing. Such circumstances call into serious question the feasibility of ever creating a truly competitive domestic pharmaceutical industry in the U.S.
Recent escalations in tariffs have already rattled the construction industry. Specialists are cautioning that these financial policies might complicate the challenge of establishing new pharmaceutical companies even more. As noted above, steel tariffs increase site construction costs. This 40 percent increase has compounded the difficulty for companies to justify the investment in new or expanded facilities.
“Many of our members don’t have factories in the U.S. We can’t just build … within two months, factories in the U.S.” – Alexander Natz, secretary-general of Eucope
The labyrinth local permitting process creates roadblocks, too, making it difficult to attract new pharmaceutical manufacturing facilities. Fluctuations in local politics and their regulations can create bottlenecks that further exacerbate and politicize the construction process. These challenges go beyond just getting labor and materials; they include the complex regulatory environment that affects any site’s ability to get developed.
The uncertainties about the unique manufacturing equipment needed for pharmaceutical production only add to the mix. A lot of this equipment is manufactured out of stainless steel, which is hit with the same steel tariffs that are affecting construction materials. This raises the stakes for companies considering domestic production since the costs of both building and equipping a plant continue to rise.
Hope still remains among U.S. Others warn that reliance on stopgap measures risks undermining ambitious long-term efforts to boost domestic production capabilities.
“These tariffs might not be around forever,” – Jeremy Leonard, managing director of industry services at Oxford Economics
Continue reading to learn what’s causing these challenges, where the optimism lies, and which targeted policy changes can help newcomers thrive. Ned Hux, a pharmaceutical and life sciences tax partner at PwC, supports stronger, proactive steps to strengthen production in the U.S. He proposes that tax incentives, streamlined regulatory approvals, and prioritized government procurement could help bring local manufacturing to the fore.
“Targeted tax incentives, streamlined regulatory approvals, and prioritized government procurement could make U.S.-based production more attractive and competitive,” – Ned Hux
Such initiatives could help mitigate the high costs associated with labor and production while fostering a more robust domestic pharmaceutical industry. Most importantly, Hux emphasizes that these approaches will not upend our global trade relationships. This opens the door to a more nuanced approach that proactively improves U.S. pharmaceutical independence.
All told, the current economic climate has created a perfect storm for U.S. pharmaceutical manufacturing. Companies are already making hard decisions on the cost and benefit of producing here versus there. Many supply chain strategists are already taking a hard look at their supply chain strategies due to tariffs and other market forces.
“Given their presence all over the globe and their higher margins, some shuffling in their supply chains as a result of tariffs is likely,” – (unnamed speaker)
Others, for example, estimate that only one-third of the companies will pivot their current operations and focus on exploiting domestic production incentives. Many doubt that a significant transition will occur anytime soon.
“I don’t think it’s necessarily going to mean a sort of tidal wave of movement, quite frankly,” – (unnamed speaker)
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