Chinese pharmaceutical firms face significant challenges as potential US tariffs on drug imports loom. Tech observers estimate that these tariffs will hit profit margins hard for any company that provides active pharmaceutical ingredients (APIs) to the U.S. This latter case is particularly prevalent among firms operating in the antibiotic space. This latest development serves as a reminder of just how important China is to the global pharmaceuticals market. It provides nearly 90% of the active pharmaceutical ingredients (APIs) consumed in US antibiotics.
In 2024, China’s pharmaceutical exports to the U.S. reached a record $19.05 billion. This milestone made the US the biggest market on the radar of Chinese pharma companies. This market represented 17.64% of the total value of all pharmaceutical exportations from China, making this trade relationship very significant. In the latest quarter (Q1 2024), year-on-year exports to the US skyrocketed by 9.6%. They went on to exceed $4.64 billion, accounting for 17.42% of all the sector’s exports.
China is home to one of the most competitive chemicals industries in the world. It has rich resources in strong base chemicals, a full industrial chain and cheaper production costs. As a result, Chinese API producers have come to push into downstream intermediates and generic products at a growing rate. The ongoing US-China trade war has put “extreme stress” on one of China’s wealthiest provinces, creating uncertainty for many businesses.
In early April, the threat of US tariffs on pharmaceuticals became the hottest political issue. Then-President Donald Trump even threatened to slap new tariffs on imported drugs. Without question, the Trump administration made reducing our reliance on China for these essential APIs, particularly antibiotics and vitamins a priority. In 2020 as a presidential candidate, Trump signed his first executive order to reduce the prices of US pharmaceutical drugs. His intent was to bring them in line with what is being paid in other countries.
While we’re glad that this wasn’t the case, right now, the threat of tariffs on all pharmaceutical imports from China is still looming. It’s not difficult to find analysts who forecast that these rising US duties on imports from China are here to stay. This may lead to increased expense for American consumers. If Washington succeeds with its current attempts to reshore more manufacturing, it would make executives’ lives even tougher and Chinese pharmaceutical firms’ lives much harder.
Vicky Zhu, an industry expert, noted that “the implementation of tariffs aims to bring manufacturing back to the US with higher costs and drug prices, which is contradictory to the drug price reduction policy.” This contradiction creates a huge risk for American consumers and a big opportunity for Chinese suppliers.
Third, Chinese pharma companies are next in line for tariffs. To escape these fees, they would either have to crash-cover the costs or relocate their manufacturing bases to other Southeast Asian countries such as Thailand and Vietnam. Zhu stated, “Chinese suppliers exporting pharmaceutical goods or APIs to the US will likely feel pressured to cut their prices, too, in order to stay competitive, potentially hurting their margins and profit.”
The long-term impacts of these tariffs would severely prevent Chinese API manufacturers’ downstream development. Zhu emphasized, “If tariffs are imposed, it could be a hurdle for the downstream expansion of Chinese API manufacturers.” This new strategy would be a big deal to past/future Chinese firms. It will likely disrupt the entire ecosystem of the pharmaceutical supply chain, too.
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