On Wednesday morning, a segment of India’s business community found itself grappling with a disconcerting announcement: President Trump had once again hinted at imposing tariffs on pharmaceutical imports. At a dinner hosted by the National Republican Congressional Committee, Trump declared, “We’re going to be announcing very shortly a major tariff on pharmaceuticals.”
This added another layer of apprehension for India, which had already faced the shock of a 27 percent blanket tariff earlier in the week. However, there was a glimmer of hope as the initial round of tariffs had not included the global pharmaceutical industry.
India’s pharmaceutical sector, particularly the export of generic drugs, is a significant player globally, having exported nearly $13 billion worth of drugs last year, with the U.S. being its largest market. Pharmaceuticals represent India’s most successful industrial export.
In the immediate future, the U.S. has limited options for substituting its supply from India. The next largest exporter of generic drugs is China, which is also contending with higher tariffs than any other nation. Trump’s notion is that, in the long run, these medications could be produced domestically, but this would likely lead to higher prices first. Medicines are a classic example in economics of a product with “inelastic demand,” meaning that consumers will purchase them regardless of price increases.
Meanwhile, Indian government ministers are considering the potential for a bilateral agreement between Prime Minister Narendra Modi and President Trump. This week, two ministers expressed optimism about the “new opportunities” arising from these tariffs, buoyed by the fact that India’s closest competitors, like China, Vietnam, and Bangladesh, face even higher tariff rates.
In response to the news from Trump’s dinner, shares of India’s largest and most profitable pharmaceutical companies experienced a sharp decline at the start of trading on Mumbai’s stock exchange.
