U.S. Tariffs on India’s pharma: Who pays, what’s at risk
The structural answer to tariff risk is not endless cost-cutting; it is moving up the value chain
Washington’s tariff posture toward India has shifted from headline risk to operational reality. Even when pharmaceuticals sit outside formal duty lines, tighter documentation, origin rulings and routing checks behave like a shadow tariff—raising landed costs and stretching timelines. For U.S. hospitals still wrestling with stubborn drug shortages, small frictions on generics or APIs can cascade into backorders and higher pharmacy spend. For Indian exporters, pennies decide tenders. The policy task is clear: protect affordability and supply security while trade tools are recalibrated.
Indian manufacturers underpin America’s generics engine: most U.S. prescriptions are generic, and a significant share trace back to Indian facilities. If new duties or compliance frictions touch sterile injectables, oncology agents or pediatric antibiotics, the consequences are predictable—thinner inventories, substitution toward costlier brands and elevated hospital procurement costs. Shortages that surged during the pandemic have not fully receded, which means even marginal cost or time penalties imposed at the border can widen existing gaps in supply.
For India’s pharma industry, the United States remains the largest market by value and a crucial proving ground for global credibility. A tariff wedge—or the credible threat of one—compresses already narrow bid corridors with group purchasing organisations, complicates ANDA launch calendars and forces hard choices on low-volume SKUs. The squeeze is felt first in sterile injectables and other complex formulations where technical barriers are high but pricing remains unforgiving. API-heavy portfolios face a second-order hit if intermediates and key starting materials fall into higher duty brackets. Working-capital cycles lengthen as shipments face pre-clearance, documentation becomes more exacting and receivables reflect renegotiated terms.
Mitigating the hit is the practical playbook that exporters should start by rewiring contracts for volatility—adding change-in-law pass-throughs, price-escalator bands and renegotiation triggers tied explicitly to tariffs or regulatory charges, coupled with service-level commitments and carefully drafted failure-to-supply carve-outs when delays arise from government action. Reliability-first channels deserve greater weight: deeper partnerships with hospital consortia and integrated delivery networks can trade volume certainty for assured supply, especially on shortage-prone molecules where continuity, not the last cent, drives value. Origin planning must move upstream; late-stage packaging will rarely change origin, so companies should seek advance rulings on substantial-transformation tests, document supply chains end-to-end and avoid routes that could be construed as transshipment. Portfolio balance is another hedge: tilt toward complex generics, long-acting injectables, inhalation and ophthalmic products—segments with higher technical barriers and more defensible price floors—while pruning race-to-bottom SKUs that cannot absorb volatility. Finally, broaden revenue through alliances and services: CDMO work, co-development with U.S./EU biotech and 505(b)(2) reformulations create IP-adjacent streams that are less exposed to tariff whiplash and lift average realisation per molecule. Underpinning all of this is operational hygiene—qualifying secondary sites, standardising data packages for rapid resubmission, investing in track-and-trace and pre-clearing documentation with customs brokers to compress cycle time.
The structural answer to tariff risk is not endless cost-cutting; it is moving up the value chain. India is pushing into complex generics, biosimilars, peptides, high-potency drugs and advanced delivery systems, with production- and research-linked incentives nudging capital toward science-heavy segments. Parallel efforts to strengthen API and key-starting-material capacity reduce import dependence and make supply more resilient. At the same time, exporters need to look much more at broadening demand beyond the United States—to the UK and EU, Latin America, Africa and faster-growing Asian markets—lowering single-market concentration while retaining scale in the U.S.
What policy can still do—on both sides.
On the policy front, in Washington, the immediate priority may be to ring-fence essential medicines through categorical or rapid-response exclusions and to align tariff policy with shortage mitigation. Pediatric antibiotics, oncology injectables and other high-criticality SKUs should be prioritised, while agencies that accelerate site approvals and diversify supply chains need the resources to keep pace. In New Delhi, evidence-rich engagement matters more than rhetoric: coordinated submissions from industry, hospitals and payers that document shortage risk and affordability impacts strengthen the case for exclusions. Where duties do bite, calibrated export incentives tied to reliability and quality—not just volume—can cushion the blow without dulling efficiency.
Finally, tariffs used as leverage in one domain can become a public-health tax in another. Because Indian manufacturers play an outsized role in U.S. generics, even small frictions propagate quickly into prices and availability. The way forward is clear: contracts that share risk, portfolios that reward reliability, origin and compliance done right the first time, and a national push toward innovation and diversified markets. That is how India cushions earnings today—and deepens its role in U.S. health security tomorrow.
