The Real Target of U.S. Tariffs: Local Production of Active Pharmaceutical Ingredients

Pharmaceutical Tariffs Initially Expected This Month
Likely Delayed Until Next Month Due to Political and Diplomatic Issues
Accelerating Local Production with API Stockpiling and Fast-Track Factory Approvals

Although the imposition of tariffs on pharmaceuticals by the United States has been postponed due to political and diplomatic issues, the U.S. is increasingly clarifying its strategic approach to the pharmaceutical industry. Ultimately, there are clear intentions to either bring production bases for active pharmaceutical ingredients (APIs), which are regarded as strategic assets, onto U.S. soil or to strategically expand the supply chain.

According to industry sources on August 19, the U.S. Secretary of Commerce Howard Lutnick's plan to impose itemized tariffs on pharmaceuticals exported to the U.S., which was initially scheduled for mid-August, is expected to be delayed by several weeks. This delay has been influenced by the summit between the U.S. and Russian leaders, as well as subsequent discussions on a Russia-Ukraine ceasefire. Initially, President Donald Trump had mentioned the possibility of imposing tariffs of up to 250% on pharmaceuticals, following similar measures on steel and semiconductors. The announcement of tariffs related to pharmaceuticals is now likely to be made after next month.

While the pace may be adjusted according to political schedules, the overall direction is clear. The White House recently signed an executive order mandating the stockpiling of a six-month supply of 26 key APIs. Currently, the U.S. domestic self-sufficiency rate for APIs is only about 10%. This strategic stockpiling measure was applied only to major chemical pharmaceuticals, not biopharmaceuticals, due to storage challenges and short shelf lives. The raw materials for chemical pharmaceuticals can be stored for years in solid or powder form, whereas biopharmaceuticals have limited shelf lives even when frozen. This move is interpreted as the U.S. recognizing APIs, which are produced across China, India, Europe, Korea, and other regions, as strategic assets. The COVID-19 pandemic clearly demonstrated why the U.S. needs domestic API manufacturing plants. When the global supply of APIs was disrupted, it directly affected the domestic supply of treatments. In the short term, it is highly likely that policies will be divided between stockpiling chemical pharmaceuticals and attracting production bases for biopharmaceuticals.

The U.S. FDA (Food and Drug Administration) recently announced a fast-track approval system called 'PreCheck' to support the establishment of overseas pharmaceutical companies' factories in the U.S. Under this system, regulatory authorities participate from the design and construction stages of the plant to pre-verify the approval process. The intention is to reduce the biggest risk for overseas companies building API facilities in the U.S., which has been 'approval delays.'

This is a strategic calculation to reduce foreign dependence and establish domestic factories, effectively 'Americanizing' the supply chain. Such policy trends are exerting direct pressure on Korean pharmaceutical and biotech companies. Until now, Korean pharmaceutical and biotech firms have operated an export structure in which APIs are produced in Korea and only the final packaging is done locally at the destination. However, if tariffs and pressure to relocate production bases intensify, this structure will inevitably be shaken. Celltrion is already considering establishing an API production base within the U.S.

CDMO (Contract Development and Manufacturing Organization) companies specializing in APIs currently have some breathing room. According to industry sources, even if tariffs of around 15% are imposed, domestic production remains cost-effective. In most contract structures, tariffs are borne by the client, and for CDMOs, global big pharma companies find it difficult to switch production sites in the short term. Therefore, for now, there is considerable room to maintain the existing production system.

The problem is that tariffs may not remain at 15%. President Trump has publicly stated that "pharmaceutical tariffs could go up to 250%," and, as seen in the cases of steel and aluminum, there is a high possibility of gradual increases. As a result, it is expected that CDMO companies will eventually have no choice but to secure their own production bases in the U.S. or consider entering the market through joint ventures.

Lee Seungkyu, Vice Chairman of the Korea Biotechnology Industry Organization, said, "Korea, as a U.S. ally and a major production base for biopharmaceutical APIs, has a value chain advantage over other countries. We must work to ensure that these strengths are reflected in future pharmaceutical tariff rates. If additional tariff measures are implemented, our companies will inevitably feel pressure to produce locally," he added.

This content was produced with the assistance of AI translation services.