Taking a major political and economic step in the global pharmaceutical market, the US administration has announced a new tariff structure on imports of foreign generic drugs. The direct objective of this policy is to promote domestic manufacturing of medicines in America and eliminate its dependence on cheap generic medicines coming from countries like India and China. US President Donald Trump said on Tuesday that there will be 0 percent tariff on all generic medicines coming to America for two years from August 1. After this, the tariff rate will be increased to 100% for one year and 200% thereafter. Let us understand the nuances of this decision, its timeline and its impact on the Indian economy in simple language.
Important points of Trump’s tariff decision
- Trump said in a post on ‘Truth Social’ that this step has been taken to bring back the work of manufacturing generic drugs in America. Companies which do not manufacture plant and equipment within the stipulated time frame will be fined.
- Through his ‘most-favoured-nation’ drug pricing policy, Trump is pressuring drug companies to reduce prices to what people in other high-income countries pay.
- According to the US Food and Drug Administration, more than 90 percent of the drugs sold in America are generic.
- Trump said that there will be no change in the policy for patented, branded or new types of drugs (innovative drugs).
- The world’s largest pharmaceutical companies had signed agreements with the US government last year, under which medicines worth billions of dollars were exempted from tariffs.
- Trump had signed an executive order in April, under which it was said to impose 100 percent tariff on branded medicines imported into America. This will not apply unless manufacturers accept government drug pricing agreements or promise to manufacture their products within the country.
On Truth Social, US President Donald Trump posted, “Effective August 1st, 2026, all Generic Drugs being brought into the United States will continue to have a tariff of zero per cent for a two year period of time, after which the tariff will be raised to 100% for a one year pic.twitter.com/WMF3D7SpKg
— ANI (@ANI) July 21, 2026
What is Trump’s new generic drug tariff plan?
Phase 1 (Initial 2 years – 0% tariff): No new tariff (0%) will be imposed on any generic drug imported into the US for the next 2 years. This grace period of two years has been given so that there is no immediate shortage of medicines in the American market and pharmaceutical companies get time to shift their supply chains.
Second phase (after 2 years – 100% tariff): As soon as the two-year transition period ends, 100% import duty will be imposed directly on foreign generic medicines.
Third Phase (Final Phase – 200% Tariff): In the next phase, this limit will be increased to 200%, which will make importing foreign drugs into the US market extremely expensive and almost impractical.
Trump’s masterplan
- ‘Agenda of ‘Made in America’: America wants that the medicines consumed by its citizens should be manufactured on American soil by the American workforce.
- Supply Chain and National Security: During the COVID-19 pandemic and global tensions, America realized that excessive dependence on foreign countries for life-saving medicines could pose a risk to its national security.
- Reducing dependence on China and India: Currently, a large portion of the total generic drugs used in America are imported from India and China.
Pharma exports from India to America
|
Year |
month |
US million dollars |
|
2025 |
april |
41.05 |
|
2025 |
May |
46.10 |
|
2025 |
june |
50.60 |
|
2025 |
july |
49.87 |
|
2025 |
august |
44.79 |
|
2025 |
september |
45.79 |
|
2025 |
october |
40.79 |
|
2025 |
november |
41.23 |
|
2025 |
December |
53.09 |
|
2026 |
January |
51.95 |
|
2026 |
February |
47.42 |
| Source: : Department of Commerce, Ministry of Commerce and Industry, Government of India | ||
What will be the impact on Indian pharma sector?
India is called the ‘Pharmacy of the World’ and the US market is the largest source of revenue for Indian pharma companies (such as Sun Pharma, Dr. Reddy’s, Cipla, Lupine, and Aurobindo Pharma). About 40% of generic drugs consumed in America come from India.
- Short Term Relief: Indian companies will not face any immediate financial shock due to 0% tariff for two years. During this period, exports from India will continue and companies will have time to make new strategies.
- Long term challenge: After 2 years, when 100% and 200% tariff will be implemented, medicines of Indian companies will become very expensive in the American market. This will put huge pressure on their profit margins.
- Pressure of local manufacturing in America: To survive in the American market, Indian companies will either have to set up their own manufacturing plants in America or do joint ventures with American local companies, which will increase their costs (Capex).
Highest export to America
According to IEBF data, India exports pharmaceutical products to North America, Africa, EU, ASEAN, Latin America and Caribbean (LAC), Middle East, Asia, CIS and other regions of Europe. During FY 2025, India has exported to more than 200 countries around the world. About 50% of India’s exports go to markets with strict regulations like North America and Europe. The top five export countries for the Indian pharma industry in FY 2025 were USA, UK, Brazil, France and South Africa.
The countries importing the most from India during FY 2025 included USA, UK and Brazil, whose share was 34.61%, 3.01% and 2.56% respectively. The top importing countries from India during the financial year 2026 (April-July) were USA, UK and South Africa, whose share was 34.06%, 2.91% and 2.40% respectively. India’s export of pharma products to these countries in FY 2024 was as follows: $ 8.73 billion to US, $ 784.32 million to UK, $ 718.54 million to South Africa, $ 699.16 million to Netherlands and $ 667.49 million to France.
According to the latest industry data from USFDA, by April 2023, Indian formulation companies with USFDA approval had received 6,316 market authorizations, which is the highest compared to any other country. A total of 410 Type II DMFs were submitted in H1 2023 compared to 350 in H1 2022, representing an increase of 17%. Moreover, the number of DMFs (Type II Active) filed by Indian companies till January 2023 stood at 4,505.
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