- within Immigration and Antitrust/Competition Law topic(s)
Key Takeaways:
- The Executive Order applies to patented pharmaceuticals and associated ingredients, including active pharmaceutical ingredients and key starting materials.
- "Patented pharmaceutical articles" include pharmaceutical products subject to an unexpired U.S. patent and listed in the FDA's Orange Book.
- The effective dates of the tariffs depend on a few circumstances, but begin on July 31 for some companies and September 29 for others.
Summary
On April 2, 2026, President Trump issued an Executive Order imposing significant new tariffs on imports of patented pharmaceuticals and associated pharmaceutical ingredients under Section 232 of the Trade Expansion Act of 1962 (“Section 232”). The announcement and imposition of tariffs is the culmination of an investigation by the Secretary of Commerce that began almost one year ago. The Secretary found that pharmaceuticals and associated active pharmaceutical ingredients ("APIs") are being imported into the United States “in such quantities and under such circumstances as to threaten to impair the national security of the United States”. The Executive Order is accompanied by appendices that provide definitions and criteria for the applicability of tariffs. The new tariffs will take effect on July 31, 2026, for companies listed in Annex III to the Executive Order and on September 29, 2026, for other companies.
Background and Rationale
The Executive Order follows a Section 232 investigation after which the Secretary of Commerce found that the United States is heavily reliant on imports of patented pharmaceutical products, threatening to limit access to life-saving medications in the event of a global supply chain disruption. Therefore, the Secretary recommended imposing significant tariffs on pharmaceuticals and pharmaceutical ingredients, continuing to negotiate onshoring agreements related to Most-Favored-Nation ("MFN") pharmaceutical pricing, and granting preferential tariff treatment to companies that commit to onshore production.
Scope of the Tariffs
Covered Products. The Executive Order applies to patented pharmaceuticals and associated pharmaceutical ingredients, including active pharmaceutical ingredients and key starting materials. "Patented pharmaceutical articles" are defined as pharmaceutical articles that are subject to a valid, unexpired U.S. patent and are listed in the FDA's Orange Book or Purple Book, along with associated ingredients. The specific Harmonized Tariff Schedule of the United States (“HTSUS”) subheadings covered are enumerated in Annex I to the Executive Order.
Excluded Products. Generic pharmaceuticals and their associated ingredients, including biosimilar products, are not subject to tariffs under this Executive Order at this time. "Generic pharmaceutical articles" are defined as FDA-approved pharmaceutical articles, and associated ingredients, that are not subject to a valid, unexpired U.S. patent and are off exclusivity, including products approved under abbreviated new drug applications, 505(b)(2) applications (if deemed therapeutically equivalent go a listed drug), biosimilar applications, and authorized generic or biosimilar applications if the products are imported by a generic or biosimilar manufacturer. U.S.-origin pharmaceutical products are likewise excluded from the tariffs at this time. Certain HTSUS codes identified in Annex IV are also subject to a Section 232 tariff rate of zero.
Tariff Rate Structure
The Executive Order establishes a tiered tariff framework with multiple rates depending on the country of origin, the importing company's status, and the nature of the product. The structure is summarized below.
|
Tariff Category |
Rate |
Key Conditions |
|---|---|---|
|
Default Rate |
100% |
Applies to all patented pharmaceutical articles and associated ingredients unless a lower rate applies. |
|
Trade Deal Partners (EU, Japan, South Korea, Switzerland, Liechtenstein) |
15% |
Applies to patented pharmaceutical articles that are products of these jurisdictions, unless a lower rate applies. |
|
United Kingdom |
10% (Potentially 0% based on recent trade deal announcement) |
Based on an agreement in principle reached on December 1, 2025; rate reduction to zero contingent on a bilateral agreement. |
|
Approved Onshoring Plan |
20% |
Applies to products of companies with -approved plans to onshore production; this rate increases to 100% on April 2, 2030. |
|
Onshoring Plan + MFN Pricing Agreement |
0% |
Applies to companies with both an approved onshoring plan and an MFN pharmaceutical pricing agreement with the HHS Secretary; this zero rate expires on January 20, 2029. |
|
Specialty Products (Including Orphan Drugs, Nuclear Medicines, Plasma-Derived Therapies, Fertility Treatments, Cell and Gene Therapies, Antibody Drug Conjugates) |
0% |
Conditioned on the determination that the products originate from a jurisdiction with a current or forthcoming trade and security framework agreement, or that they meet an urgent U.S. health need. |
|
Generic Pharmaceuticals |
No additional tariff |
Not subject to Section 232 tariffs at this time. |
Effective Dates
The tariffs will become effective on two separate dates depending on the importing company. For the 17 companies listed in Annex III to the Executive Order, tariffs take effect on July 31, 2026, which is 120 days from the date of the Executive Order. For other companies, the effective date is September 29, 2026.
Pre-Existing Company-Specific Agreements (Annex II)
Thirteen companies already entered into company-specific agreements with the Secretary of Commerce related to Section 232 tariffs on pharmaceutical products and ingredients prior to the issuance of the Executive Order. The Executive Order ratifies these agreements and delegates to the Secretary the authority to enter into and implement similar agreements in the future. For companies that are eligible for the reduced onshoring tariff rate and that have entered into MFN pharmaceutical pricing agreements, the applicable tariff rate is zero until January 20, 2029. The zero tariff rate also applies per the terms of the agreements referenced in Annex II.
Tariff Mitigation Measures
The Executive Order establishes several mechanisms by which companies can reduce or eliminate their tariff exposure.
Onshoring Plans. Companies that submit and obtain approved plans to onshore production of pharmaceuticals and pharmaceutical ingredients will benefit from a reduced 20 percent tariff rate rather than the default 100 percent rate. The Executive Order states that the Secretary of Commerce will publish criteria for qualifying onshoring plans in the Federal Register, and all plans will be subject to approval, monitoring, and enforcement. Companies will be required to submit periodic progress reports, which may be externally audited. Notably, the 20 percent onshoring rate is set to increase to 100 percent on April 2, 2030, meaning companies must complete onshoring within this window to gain lasting tariff benefits.
MFN Pharmaceutical Pricing Agreements. Companies with approved onshoring plans that also enter into MFN pharmaceutical pricing agreements with the Secretary of Health and Human Services can achieve a zero percent tariff rate until January 20, 2029. The Secretary is authorized to apply this zero rate to companies he determines are likely to be eligible soon, for example because they have agreements in principle.
Negotiations. The Secretary of Commerce and the Secretary of Health and Human Services are directed to pursue or continue negotiations of agreements to address the national security threat, and must update the President on the progress of such negotiations within 90 days. If agreements are not entered into within 180 days, are not being carried out, or are ineffective, the President may take additional action to adjust imports.
Enforcement and Penalties
The Secretary is authorized to re-institute tariffs for companies that fail to fulfill commitments under onshoring plans or pricing agreements. In cases where the executive branch assesses that a company engaged in fraud or deliberately misled the U.S. Government with respect to onshoring commitments, the Secretary may reimpose tariffs both prospectively and retroactively and may impose other tariffs and penalties to the extent consistent with applicable law.
Future Review of Generic Pharmaceuticals
Although generic pharmaceuticals are not subject to tariffs at this time, the Executive Order directs the Secretary to inform the President within one year of any circumstances that might indicate the need to take action to adjust imports of generic pharmaceuticals and their associated ingredients. Companies in the generic and biosimilar space should monitor developments closely, as the Administration has reserved the right to expand tariff coverage.
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