As you’ve undoubtedly heard, former President Donald Trump recently declared a new round of tariffs. These have the potential to be landmark for the pharmaceutical industry, particularly in countries like Australia. He made headlines last week after announcing intentions to implement forceful tariffs on selected pharmaceuticals in the coming fortnight. This action would require manufacturers to relocate supply chains out of China and back to the U.S. During these ongoing negotiations, Trump dramatically raised the stakes on China, placing a 145% tariff on China. Though congressional talks stuttered, he subsequently downgraded that tariff to 30% for an initial 90-day period.
The visitor announcement comes on the heels of Trump’s “Liberation Day.” This event featured the introduction of a 10% baseline tariff on exports from all countries except for Australia. Whereas medical devices were not spared in this latest round of tariffs, pharmaceuticals had been spared before. Trump hinted that pharmaceutical tariffs could be as high as 25%. In fact, experts warn that this provision could increase drug prices in the U.S. by about $51 billion annually.
Impact on Australian Pharmaceuticals
Australia currently exports about $1.6 billion worth of medicines and healthcare products each year to the United States. This relatively small trade is very important for Australian manufacturers. Firms such as CSL, which has large-scale operations in Melbourne and an extensive deep manufacturing and distribution supply chain network in the U.S., will benefit tremendously. The possible tariffs represent a heavy blow to this important relationship, jeopardizing the competitiveness of Australian-produced medicines.
American hospitals, for our part, are girding ourselves for increased expenses. They’re concerned with the disruption in patient care resulting from the proposed tariffs on medical devices and pharmaceuticals. It gets even worse if Australia retaliates with its own tariffs on U.S. pharmaceuticals. This will result in increased costs for American goods being exported to Australia.
“If the US pharmaceutical companies could get a better price out of Australia, they would do it regardless of how much they’re gouging the US.” – Matt Grudnoff, senior economist at the Australia Institute
Australian manufacturers that are unable to shift their operations to the U.S. may lose demand for their products. This temporary change would dramatically improve their business opportunities and prospects. This is tantamount to creating an uneven playing field in the market. U.S.-made medicines could have a competitive advantage due solely to their lower production costs receiving a tariff benefit.
Trade Dynamics and Responses
Australian Prime Minister Anthony Albanese has bereaved Trump’s proposed tariffs, “without any basis in logic.” He unapologetically made these tariffs “never negotiable.” His administration shares concerns over the negative economic effects that these tariffs would bring to Australian exports. They’re worried about how they might lose access to innovative new medical products.
Finally, many Australian companies have already discovered effective strategies for overcoming these new trade hurdles. Two of the largest exporters of medical devices to the U.S. have abused an obscure U.S. law. This law enables them to begin importing products for people with disabilities duty-free, thus allowing them to avoid or mitigate some negative tariff effects.
Foreshadowing any potential positive impacts from these measures, the prevailing mood among Australian manufacturers is pessimistic. Given Australia’s reliance on China, Europe and more recently India for pharmaceuticals, it seems critical that we begin to engage Australia on the need to rethink our export strategies. Creating medicines Australia’s generic pharma sector keeps critically important local production of blood products and vaccines made by CSL. When compared to the larger contributors, this emphasizes its smaller role in the global market.
Future Considerations and Market Outlook
And as Trump moves to impose these tariffs, all of us are wondering what this means for the two countries and the world at large. If these tariffs go ahead, Australia will be worse off, or at least have reduced access to new medicines and other innovations. Such a situation would proceed to even further marginalize Australian pharmaceutical exports. Retaliation will only serve to put local manufacturers in an even tougher position, going head-to-head with U.S.-produced options.
