Trump's 200% generic drug tariff threat puts $9.7 billion Indian pharma exports at risk; industry says reshoring not practical

New Delhi|Mumbai: US President Donald Trump’s latest proposal to impose steep tariffs on imported generic medicines starting 2028 is unlikely to have any immediate impact on Indian drugmakers, industry officials said, although the market reacted negatively.

India is the largest supplier of generic drugs to the US, having exported $9.7 billion worth that accounted for 38% of New Delhi’s pharma shipments. The threat should quicken the need to hunt alternative export markets. Experts told ET the cost economics of generic drug manufacturing, long gestation periods for new facilities make large-scale reshoring difficult in the near term.

Also read: 200% Trump tariff shock? India’s cheap pills may still beat US rivals

Higher Healthcare Costs Seen in US

America also has dependence on low-cost imported drugs, they said.

“There is no formal guidance (on US tariff) yet. We only have a tweet. We will see how the situation evolves because we’ve been in those cycles in the past. It is not practical to move operations like that to the US,” said Erez Israeli, chief executive of Dr Reddy’s Laboratories. “Obviously, if tariffs are imposed, we’ll have to raise the price in the US. Even if it is made in the US, costs will be higher, which will lead to inflation for insurers and retailers.”

Industry watchers also believe the two-year time window that Indian drugmakers now have before tariffs would kick in would give them sufficient lead time to diversify and adapt, while American patients and insurers brace for higher healthcare costs.

“Effective August 1, 2026, all generic drugs being brought into the US will continue to have a tariff of zero percent for a two-year period of time, after which the tariff will be raised to 100% for a one-year period of time, and 200% thereafter,” Trump said in his Truth Social post.

The earlier policy had exempted generic medicines that made up nearly 90% of the volume of prescriptions in the US.

‘No Business Case’

Nearshoring of these drugs, however, may not be cost-effective.

Namit Joshi, Chairman of the Pharmaceutical Export Promotion Council of India (Pharmexcil), said there is limited commercial incentive to direct significant capital toward a segment that generates such a disproportionately small share of revenue.

Vishal Manchanda, pharma analyst, Systematix Group, concurred. “It is practically not possible for Indian generic drug makers to allocate incremental capital in setting up plants in the US. They would rather diversify away from the US,” Manchanda said. “Only for very high value generics, which offer significantly high gross margin above 90-95%, companies may consider setting up local facilities there.”

Manufacturing a drug in India costs at least 30-50% less than in the US, according to experts.

Top Indian generic drugmakers, Aurobindo Pharma, Dr Reddy’s, Zydus Lifesciences, Lupin, Sun Pharma and Cipla, get a third to nearly a half their revenue from the US, mostly in the form of generic drugs. Ironically, the US FDA recently tapped Indian companies for supply of a chemotherapy drug ifosfamide, which was in short supply in the US.

The Nifty Pharma index, which includes several of these companies, lost 1.3% Wednesday, when the broader Nifty 50 lost 0.8%.

The costs and procedural complexities associated with building and running US facilities mean Indian drugmakers face little competition in the interim.

“Setting up a manufacturing plant in the US takes at least two years, followed by a plant inspection and product approval cycle of another 12-15 months,” said Tushar Manudhane, Senior Vice President, Institutional Research Analyst – Healthcare, Motilal Oswal Financial Services. “Any real competition from onshore production is still years away.”

Beyond Stateside

Industry experts said that Indian pharma companies have room to mitigate the impact by diversifying into Europe and Latin America, as the margins offered by generic drugs do not give sufficient buffers for Indian drugmakers to set up manufacturing facilities in the US.

“The moment they set up a plant in the US the cost advantage goes away,” said Bhanu Prakash, Partner and Healthcare Services Industry Leader, Grant Thornton.

However, high healthcare costs in the US would probably prompt the US establishment itself to relook at costs, creating the room for further negotiations.

“IPA would continue to engage with the US Administration to build a stronger partnership and further strengthen health and medicine security for both countries,” said Sudarshan Jain, secretary general, Indian Pharmaceutical Alliance.

Harish Jain of the Federation of Pharma Entrepreneurs (FOPE) also expects both governments to engage in a dialogue to protect patient interests.