Earlier in 2025, we examined how tariffs and trade policy were reshaping pharmaceutical supply chains and reinforcing U.S. dependence on offshore API manufacturing. Since then, tariff-related pressure on pharmaceutical raw materials, APIs, and intermediates has continued to evolve — not in direction, but in intensity.
Recent developments show no signs of relief. Tariffs are becoming a structural factor in API sourcing decisions, not a temporary disruption.
What Has Changed Since Early 2025
While Section 301 tariffs on Chinese imports have been in place for years, February 2025 actions expanded their reach and impact on pharmaceutical supply chains:
- Expanded coverage to more pharmaceutical-relevant materials and intermediates
- Duty rates on key products now exceed prior levels — in some cases, up to 25%
- Pandemic-era tariff exclusions expired, ending previous cost relief
For companies importing APIs or intermediates within these categories, tariffs are now built into landed costs rather than occurring as periodic shocks.
Quick Reference: Tariff Evolution at a Glance
| Year | Policy Action | Impact on Pharmaceutical Inputs |
| 2018 | Initial Section 301 tariffs introduced | 15–20% cost increase on key intermediates |
| 2020 | Temporary pandemic-era exclusions issued | Partial cost relief during demand spikes |
| 2025/2026 | Exclusions expired; additional HTS codes affected | 25%+ cost increase for some APIs |
Emerging Trade Policy Developments to Watch
Trade policy affecting pharmaceutical supply chains continues to evolve. In April 2025, the U.S. Department of Commerce launched a Section 232 national security investigation into pharmaceutical imports, including finished drugs, APIs, and key starting materials. As outlined in a recent industry report, the investigation progressed to a presidential proclamation imposing tariffs on certain patented pharmaceuticals and APIs, with rates varying by country and subject to ongoing bilateral negotiations. The review reflects growing concern among policymakers that heavy reliance on foreign pharmaceutical inputs could create supply vulnerabilities during geopolitical or public health disruptions.
Importantly, not all pharmaceutical inputs receive the same treatment under trade policy. Tariff exemptions and carve-outs for pharmaceuticals have historically been applied to finished drug products classified under HS Chapter 30, but they have not consistently extended to the active pharmaceutical ingredients, intermediates, and key starting materials classified under HS Chapter 29.
For companies that source or manufacture at the ingredient level, this gap can mean meaningful cost exposure even when “pharma” appears exempt at the headline level. Similarly, recent policy actions have drawn a sharp line between patented and non-patented drugs, with tariff rates, negotiation frameworks, and timelines differing significantly based on patent status. These distinctions reinforce the need for pharmaceutical companies to evaluate trade risk at the product and input level, not just the industry level.
Tariffs Have Not Reduced Dependence on Offshore API Manufacturing
Despite years of tariffs and ongoing geopolitical tension, API manufacturing patterns have not meaningfully shifted away from China. According to FDA registration data, the number of API sites in India and China supplying the U.S. continues to grow, while the U.S. sites saw only a marginal increase.
This year, we now see India surpassing the U.S. in the number of FDA-registered API manufacturing facilities. The U.S. accounts for 21% of registered API sites.
Cost competitiveness, production scale, and integration across raw materials continue to drive sourcing decisions and reliance on manufacturing hubs like China and India. The offshore advantages behind API manufacturing have been built over decades. India and China continue to offer:
- Economies of scale
- Specialized manufacturing expertise
- Integration with upstream raw materials
- Favorable policy environments
These structural advantages cannot be easily replicated in the short term.
The Impact of Tariff Pressures on the Pharmaceutical Industry
Industry response has been cautious, with concerns centered around the potential impact on pricing and patient access. While branded products often have pricing flexibility and market exclusivity, the implications for generic drugs and off-patent APIs are fundamentally different.
Unlike branded therapies, generics operate within tightly constrained pricing structures. Margins are often thin, and cost increases—whether from tariffs, logistics, or compliance—are more difficult to absorb. In many cases, these pressures do not lead to supply chain relocation, but rather to product discontinuation or reduced availability.
Pharmaceutical supply chains differ from other industries. Medicines cannot sustain significant increases in expenses without direct consequences for patient access and affordability.
Geopolitical Developments to Consider
Tariff policy is only one dimension of a broader shift. Since the onset of the COVID-19 pandemic, the pharmaceutical industry has been operating in an environment of sustained supply chain uncertainty — driven not only by trade policy, but by export restrictions, geopolitical tensions, regulatory divergence, and the concentration of critical manufacturing capacity in a small number of countries. These disruptions are no longer episodic. They are structural.
For pharmaceutical companies, this means geopolitical and trade risk can no longer be treated as an external event to react to. It must be built into sourcing strategy, supplier qualification, and capacity planning as a baseline consideration. Companies that rely on a single geography or a single supplier for critical inputs — whether APIs, key starting materials, or finished dosage forms — carry risk that no tariff exemption or exclusion process can fully mitigate. The most resilient supply chains are those designed with optionality: diversified sourcing networks, qualified alternatives, and domestic manufacturing capabilities positioned to absorb disruption when it occurs.
Practical Implications for API Sourcing
As tariff pressure persists, several priorities are emerging for pharmaceutical manufacturers and sourcing teams:
- Pricing and Supplier Transparency: Understand how tariffs are absorbed or passed through in supplier pricing. Build clauses for tariff pass-throughs into contracts to maintain accurate cost assumptions.
- Supplier Diversification: Reduce single-source dependency by qualifying alternative suppliers across multiple regions and continents. Meaningful diversification provides flexibility — not just a geographic shift.
- Regulatory and Quality Readiness: Shifting API sources requires robust regulatory review and qualification. Proactive pre-qualification helps mitigate supply disruptions when trade or policy changes occur.
- Logistics and Inventory Planning: Increased customs scrutiny and policy volatility may extend lead times. Develop inventory buffers for high-risk APIs — typically 3–6 months — while balancing holding costs.
Planning for a Tariff-Constrained Future
Supply chain uncertainty is no longer an external shock that pharmaceutical companies can afford to react to— they’re now an operating condition that should be proactively de-risked. Companies that plan for flexibility, regulatory readiness, and supply diversification will be best positioned to manage cost volatility and maintain continuity.
Partner with industry experts like LGM Pharma to build resilience into your sourcing strategy.
LGM Pharma provides global API sourcing and U.S.-based drug product manufacturing designed to minimize exposure to tariff, geopolitical, and regulatory risks. Contact us to discuss strategies for securing your supply chain.