US Reciprocal Tariffs: Impact On Indian Pharmaceutical Exports

Posted On - 11 March, 2025 • By - Aditya Bhattacharya

Introduction

India has cemented its place as a global leader in pharmaceuticals, supplying nearly 40% of the generic drugs consumed in the US. However, a potential shift in trade policy could disrupt this dynamic. The US is considering imposing a 10% tariff on Indian pharmaceutical imports, mirroring the tariff India applies to American drugs. While this move aims at balancing trade terms, it could lead to higher costs for US consumers, reduced competitiveness for Indian exporters, and possible supply chain disruptions. The impact on India’s economy, pharmaceutical industry, and global healthcare accessibility remains a pressing concern for both nations.

Background: India’s Pharmaceutical Dominance and US Trade

India’s Role in Global Pharmaceuticals

India has been referred to as the “pharmacy of the world,” primarily owing to its dominance in manufacturing generic drugs. Approximately 40% of the generic medicines used in the United States comes from India.[1] The clear reasons behind this are the cost-effective production, strong manufacturing infrastructure, and the skilled workforce. This has significantly helped Indian pharmaceutical companies in becoming major global players, offering affordable medicines without compromising on their quality.

However, India’s influence and expertise goes beyond generics drugs; it is also a major hub for vaccine production. Several companies manufacture and distribute life-saving vaccines across the world. Ranging from polio to measles to COVID-19, these vaccines have played a crucial role in global public health efforts.

US-India Trade in Pharmaceuticals

India’s biggest pharmaceutical export market is the United States. More than 31% of India’s total exports in the pharmaceutical sector are directed to the US. In 2023 itself, Indian exported $8 billion worth of pharmaceutical products to the US.[2]

Despite this, the reciprocal trade arrangements between the nation are not balanced. On one hand, India imposes a 10% tariff on finished pharmaceutical products which are imported from the US to safeguard the domestic pharma industry. On the other hand, the US does not impose any or little tariffs on imports from India. This different has led to multiple trade discussions, and in furtherance of this, the US is now considering a move that would equalize the tariff structure.

What Are Reciprocal Tariffs?

Reciprocal tariffs follow a simple principle: if one country imposes a tariff on imports from another, the affected country applies the same rate in return. In this case, the US is weighing the idea of a 10% tariff on Indian pharmaceutical products—mirroring the one India applies to American drug imports.

While this may seem like an effort to balance trade policies, the consequences could be far-reaching. For Indian drug manufacturers, higher costs could evidently  affect competitiveness in  the U.S markets 

Potential Impacts of Reciprocal Tariffs

Increased Costs and Reduced Competitiveness

If the US imposes a 10% tariff on Indian pharmaceutical products, it is likely to increase costs for Indian manufacturers. This would then make their products more expensive in the US market. This could have the following consequences:

  • Reduced profit margins for Indian exporters, particularly for low-cost generics.
  • A disproportionate impact on smaller Indian pharmaceutical companies that rely heavily on US exports.

Market Share and Affordability

Certain medications will have a direct impact. The US heavily relies on Indian manufacturers for drugs that are used in treatments like cardiovascular diseases, diabetes, and antibiotics. Imposition of tariffs will lead to price increases giving leverage to the domestic manufacturers as compared to the Indian importers.

Supply Chain Disruptions

A hotly debated issue is whether reciprocal tariffs can significantly disrupt the pharmaceutical supply chain. Some experts contend that such effects can be mitigated by diversifications and improvements in the efficiency. Others, however, warn that imposing tariffs on a major supplier like India is likely to lead to shortages.

The US Food and Drug Administration (FDA) plays a key role in ensuring an uninterrupted drug supply, regularly monitoring potential shortages and assessing global manufacturing capacities. If supply chain disruptions occur, the FDA may need to expedite approvals for alternative suppliers or facilitate stockpiling to avoid drug shortages.

Economic Impact on India

The pharmaceutical sector forms a crucial part of India’s economy; it employs more than 3 million people. This reciprocal trade system could have several impacts on this sector. For instance:

  • Revenue Declines: There may be reduced sales and profit margins owing to increased costs and decreased competitiveness.
  • Competitive Challenges: It could lead to the US domestic manufacturers and other global suppliers gaining an advantage, which would then further pressurize Indian firms.
  • Potential Job Losses: A decrease in pharmaceutical exports can potentially lead to job losses. This is especially true for low margin export-driven firms. This would, thus, affect employment in manufacturing, research, and distribution.
  • Broader Economic Implications: Since the sector contributes significantly to India’s GDP and foreign exchange earnings, there can be significant trade disruptions. These would then impact the overall economic growth.

Strategies to counter the tariff imposition

 While India has been reducing the overall import duties on goods over the years; historically to mitigate the tariff-related costs the Indian Government and importers must consider the following:  operational efficiencies through:

  • Automation: This involves implementing technology-driven production processes to reduce manufacturing costs.
  • Cost Optimization: This means streamlining supply chains and sourcing raw materials more effectively to lower overall costs.
  • Government Support: Indian government initiatives, such as the Production-Linked Incentive (PLI) scheme for pharmaceuticals, can help in reducing the dependence on import of raw materials for the manufacturer of drugs.
  • India’s relationship with EU and other Countries can come handy in this situation. If India can enter strategic alliance with other Countries, it will aid in providing India with alternate markets and lesser dependence on U.S markets.

Analysis: Tariff Disparity and Financial Implications

If the US increases the tariff by 10%, it would lead to higher operational expenses for Indian pharmaceutical companies. This would then affect their pricing of the medicines and severe their access to U.S markets.

Another important issue which must be considered is the fact that tariffs are also being imported on China. This means due to lowering of demand in the US markets, China might consider dumping these surplus goods into Indian markets. In the case of pharma sector, India and U.S are both dependent on active pharmaceutical ingredients (APIs); if such APIs loses its demand due to high tariff barriers in the US, China may consider dumping these goods leading to disruptions in the market.

Lastly, mid-sized and smaller firms who are surviving on lower margins and profitability may have to re-consider their operations pursuant to imposition of tariffs. 

Conclusion

The proposed reciprocal tariffs present a complex challenge for the Indian pharmaceutical sector. While affordability has been India’s strength, the new tariffs could reshape market dynamics. The potential for cost increases and competitive pressures is real, demanding swift and adaptable responses. Diversification and innovation become less optional, more necessary. Ultimately, the impact will depend on how effectively Indian companies and policymakers can adjust to a changing trade landscape, balancing economic realities with the need to ensure continued access to essential medicines. The outcome will test the resilience of both nations’ trade relationship.

Contributed by – Surbhi Kapoor

[1] https://blogs.pib.gov.in/blogsdescr.aspx?feaaid=68.

[2] https://www.ibef.org/exports/pharmaceutical-exports-from-india.

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