Last week, US President Donald Trump provided another policy shock that reverberated across the world when he announced that his administration would impose a 100 per cent tariff on branded or patented pharmaceutical products, a 50 per cent tariff on kitchen cabinets, bathroom vanities and associated products, and a 25 per cent tariff on heavy trucks from October 1. Of course, the pharma tariffs created the biggest ripples. The US accounts for almost 40 per cent of Indian pharmaceutical exports, and until now, pharma exports were exempt from the 50 per cent tariffs imposed by the Trump administration on Indian goods. Not surprisingly, India’s pharma stocks took a severe hit on Friday. The Nifty Pharma index, which is designed to reflect the behaviour and performance of the pharmaceutical sector in India, fell by more than 2 per cent as the news spread. The fate of many individual pharmaceutical stocks was worse. For instance, Sun Pharma declined by 4.9 per cent, Biocon by 3.8 per cent, Abbott India Ltd by 3.5 per cent and Zydus Lifesciences was down 3.4 per cent.
The new tariffs were announced after the US Department of Commerce launched a range of investigations under Section 232 of the Trade Expansion Act of 1962. Tariffs announced under this section are different from the so-called “reciprocal tariffs” under the International Emergency Economic Powers Act (IEEPA). As tariffs under IEEPA have come under increasing judicial scrutiny — and have even been struck down by some US courts — the Trump Administration has increasingly moved towards using Section 232 of the Trade Expansion Act in a bid to ring-fence new tariffs. It is also notable that the new tariffs are more sectoral in nature, not against any one specific country. The new list adds to the existing sectoral tariffs on imports of steel, aluminium, auto and auto parts as well as copper. Another significant aspect is that these tariffs are likely directly towards branded and patented medicines, not generics (off-patents). This means Indian exports may not be as severely affected although more clarity is needed on this matter, especially in relation to “branded” generics.
The fact that the Trump administration has imposed yet another layer of tariffs should not come as a surprise either to policymakers or companies or indeed investors. Trump stays determined to bring manufacturing back to the US as well as to bridge the trade deficit with all countries. Reports suggest that more sectoral tariffs, such as on semiconductors, are in the offing. For Indian policymakers, the task is threefold. One, to conclude a trade deal as quickly as possible to limit the damage. Two, to open up new markets and deepen existing ones. And most importantly, to undertake and accelerate domestic reforms to make Indian businesses more efficient.
