UPSC Editorial Analysis: US Tariff Shock on Pharmaceuticals and Implications for India

General Studies-2; Topic: Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

Introduction

• In September 2025, US President Donald Trump announced a fresh round of tariffs:
  • 100% tariff on branded or patented pharmaceutical products.
  • 50% tariff on kitchen cabinets, bathroom vanities, and associated products.
  • 25% tariff on heavy trucks, effective October 1.
• The announcement underlines how trade policy shocks in the US ripple across global markets, especially for India’s export-driven pharma sector.

Background

• Section 232 of the Trade Expansion Act, 1962
  • Allows tariffs if imports threaten national security.
  • Trump administration is increasingly relying on this, as tariffs under the International Emergency Economic Powers Act (IEEPA) face judicial challenges.
  • Previous Section 232 actions targeted steel, aluminium, auto parts, and copper.
• Nature of New Tariffs
  • Sector-specific, not country-specific.
  • Focused on branded and patented medicines (not generics).
  • If limited to patented drugs, India’s impact may be smaller as India specializes in generics.
  • However, “branded generics” could fall under ambiguity, raising uncertainty.

Impact on India’s Pharmaceutical Sector

• Export Dependence
  • India’s pharma exports to the US: ~USD 8 billion annually (US FDA approval critical for market access).
  • Around 40% of India’s pharma exports go to the US, making India vulnerable to such policy shocks.
• Stock Market Reaction
  • Investors anticipate reduced margins and higher costs.
  • Pharma index drop reflects future earnings uncertainty.
• Differential Impact
  • Patented drug exporters (fewer in number) may face the brunt.
  • Generic drug makers may escape direct impact, but supply chains linked with “branded generics” risk disruption.
• Long-term Risk
  • Rising protectionism in the US may erode India’s role as the “pharmacy of the world.”
  • Companies may face stricter scrutiny under FDA compliance and pricing pressures.

Broader Trade Dimensions

• India–US Trade Relations
  • Trade tensions are not new: tariffs on steel/aluminium, withdrawal of GSP benefits, and visa fee hikes have already tested ties.
  • Pharma tariffs deepen mistrust, though both nations remain strategic partners in other domains (defence, Indo-Pacific cooperation).
• Global Trade Trends
  • Trump’s strategy: reduce trade deficits and bring manufacturing back to the US.
  • Sectoral tariffs indicate a shift away from multilateral rules (WTO) to unilateral trade policy.
  • Potential future targets: semiconductors, electronics, medical devices.

Policy Options for India

• Trade Negotiations
  • Urgent need for a bilateral trade deal to protect key sectors like pharma, textiles, and IT.
  • India must push for tariff exemptions or phased implementation.
• Market Diversification
  • Expand exports to EU, Africa, Latin America, and ASEAN to reduce over-dependence on the US.
  • Example: Africa’s rising demand for affordable generics offers opportunities.
• Domestic Reforms
  • Ease of doing business in pharma manufacturing.
  • Incentives under PLI scheme for pharma to boost competitiveness.
  • Faster drug approval systems to enhance domestic innovation.
• Innovation Push
  • Invest in R&D for new molecules and biosimilars, not just generics.
  • Collaboration between Indian companies and global research institutions.

Economic and Strategic Implications

• Economic
  • Short-term: fall in stock market capitalization, export revenue hit.
  • Medium-term: push for innovation and new market linkages.
  • Possible impact on employment in the pharma industry (which employs millions).
• Strategic
  • India’s role as a reliable global health supplier (COVID-19 vaccine diplomacy) may face credibility challenges if access narrows.
  • Trade frictions may spill into strategic partnerships, affecting trust.
• Public Health
  • US consumers may face higher medicine prices if tariffs are passed on, since branded drugs are already costly.
  • Tariffs could distort global medicine supply chains.

Way Forward for India

• Short-term:
  • Engage in diplomatic lobbying in Washington.
  • Use WTO dispute settlement if tariffs appear discriminatory.
• Medium-term:
  • Strengthen domestic R&D ecosystem.
  • Expand South-South pharma trade partnerships.
• Long-term:
  • Position India as not just a generic producer, but also an innovator in biopharma and biotechnology.
  • Build resilience through diversified global supply chains.

Conclusion

• The US tariff shock underlines the vulnerability of India’s export-led sectors to global policy changes. The incident serves as a reminder that global economic nationalism is rising, and India must adapt with agility, foresight, and resilience.