In 1994, the World Trade Organisation inked the ‘Agreement on Trade in Pharmaceutical Products’, removing tariffs and other charges on a significant number of pharmaceutical products – and the active ingredients used to produce them – permanently. This agreement does not apply to all countries globally, but to a group of signatory countries, including the UK and US. When import tariffs were first formally introduced and implemented by the US government in April 2025, exemptions for pharma-related trade were present in line with this agreement.
However, the future of US pharma trading is far from certain. The US government has clarified multiple times that pharma-related trade is not necessarily safe from new tariffs, despite the 1994 Pharma Agreement. UK pharmaceutical companies such as GSK and AstraZeneca sell a huge proportion of their manufactured drugs in the US market – losing tariff-free access would be a grave blow to an industry that is already suffering from fragile supply chains, geopolitical instability, and the effects of Brexit and the COVID-19 pandemic. But will these pharma-specific tariffs arrive? And what can the pharma industry do to counteract the effects of a highly tariffed US market?
Shifting supply chains
If US trade tariffs are expanded to include pharmaceutical products in the future, the relocation and reinvestment of manufacturing facilities to the US could become a priority for international pharma companies – with many of these sites based in the UK and Ireland. AbbVie recently announced a $10bn investment in growing their US footprint.
“Relocation of manufacturing will come at an astronomical cost to pharma companies and it’s not the type of decision to be made overnight. The required scale of facilities, compliance with stringent regulations, and GMP accreditation all contribute to these high costs,” explains Abi Godfrey, Corporate Finance Director. “Diverting budgets to mitigate tariffs to facilitate this manufacturing relocation, may limit available funds for drug development and related services and in turn, potentially slow the introduction of new drugs to market.”
This is more likely to impact large pharma firms who have commercial manufacturing in house. For the broader pool of companies developing drugs for US market, the more concerning emerging issues are cuts to US National Institutes of Health funding grants that support development and innovation.
However, even if pharma companies were to undertake costly manufacturing relocations to the US, the remaining effects of US import tariffs on specific countries that produce and export active ingredients would still affect bottom-line costs and supply.
“80% of active ingredients for pharmaceuticals are produced in China and India. Additionally, many generic pharmaceuticals (e.g paracetamol, ibuprofen) are manufactured in India, have a much lower profit margin, and will therefore struggle more with tariffs than higher margin patented drugs. Pharma companies may again divert budget to ensure generic production continues in the face of higher US tariffs.”
Abi Godfrey, Corporate Finance Director
Emerging opportunities for UK pharma
The reduced accessibility of the US market will cause issues – but the shift in global trade trends may come to benefit UK pharma companies who are able to effectively scenario plan and take advantage of any resultant opportunities.
If US companies decide to exit offshore operations, large manufacturing sites in the UK, Ireland and beyond – these sites could become an acquisition opportunity for firms who are able to complete deals quickly.
Similarly, with the US market no longer financially attractive due to higher tariffs, active ingredient exporters like China and India may choose to over-supply other markets, including the UK. Cheaper inputs for UK-based pharma companies could have a positive effect on margins, despite the potential loss of the US market.
“Rather than invest quickly and heavily, UK pharma companies should focus on building relationships in other geographies. With the 90-day pause in tariffs, companies that have “their eggs in one basket” with one large US client should be seeking alternative export targets and creating partnerships with clients in less-taxed regions.”
- Abi Godfrey, Corporate Finance Director
For more insight and guidance, get in touch with Abi Godfrey.
