Nearly 25 years ago, Americans discovered just how critical the antibiotic ciprofloxacin could be. Commonly prescribed for bacterial infections, “cipro” is also the first-line treatment for anthrax exposure. In September 2001, just one week after the 9/11 terror attacks, the U.S. public found itself contending with yet another nightmare: someone was sending anthrax through the U.S. Postal Service to media companies and congressional offices—ultimately killing five people and infecting 17 others. Those with even the smallest risk of exposure lined up for treatment.
Today, anthrax remains one of the deadliest and easiest biological weapons to produce. Yet 80 percent of the U.S. supply of ciprofloxacin is still imported. Moreover, most of those imports, whether from Europe, India, or Jordan, rely on key starting ingredients made in China.
It’s not just cipro. The United States is alarmingly dependent on imports for many of its critical medicines and their ingredients. Over the last two decades, according to U.S. Census Bureau data, U.S. pharmaceutical imports have grown by an average nine percent annually. Over just last 12 months, the value of U.S. pharmaceutical imports has ballooned 40 percent; the $315 billion pharmaceutical sector, which U.S. manufacturers once dominated, was the fifth-largest U.S. import category in 2024. By volume, China and India are the largest suppliers of drugs and their ingredients to the United States, including common antibiotics, statins, and other older low-cost generic medicines. By value, Germany, Ireland, and Switzerland dominate the U.S. pharmaceutical trade, largely through their exports of top-selling branded drugs such as Viagra and Botox and patented medicines such as new weight-loss treatments and Keytruda, the top-selling cancer drug. The United States has long dominated the production of innovative medicines, but even that market segment is at risk: in 2024, one-third of the new compounds licensed by U.S. pharmaceutical companies reportedly were made by Chinese biotechnology firms.
The combination of U.S. reliance on imports for critical medicines and the geographic concentration of those supplies has left Americans vulnerable to the natural disasters, manufacturing mishaps, and strategic prerogatives of other nations. In 2023, a U.S. Department of Defense official testified that the national security risks of Chinese dominance of the global market for active pharmaceutical ingredients (APIs)—the building blocks of all drugs—“cannot be overstated.” Should China “decide to limit or restrict the delivery of APIs to the United States,” he warned, “it would have a debilitating effect on U.S. domestic production and could result in severe shortages of pharmaceuticals for both domestic and military uses.” The United States maintains stockpiles of strategic medicines—the supply of ciprofloxacin is meant to cover 12 million people for 60 days—but emergency stockpiles are no answer for the chronic drug shortages already prevalent in the United States. Nor would they meet Americans’ health needs in a sustained crisis, such as a pandemic or an attack by a foreign adversary.
U.S. President Donald Trump has correctly surmised that the United States doesn’t make many of the everyday drugs that Americans take anymore, but his proposed remedy could make the problem worse. This month, the president promised that the country’s pharmaceutical imports would be “tariffed at a very, very high rate, like 200 percent,” which he predicted would motivate pharmaceutical manufacturers to bring production “roaring back” to the United States if they are given “a year, year and a half” delay in tariff implementation. In service of that goal, the Trump administration has launched an investigation under Section 232 of the Trade Expansion Act of 1962 to determine whether pharmaceutical imports threaten U.S. national security. Notably, the security-related products targeted under Section 232 are exempt from recent court decisions that blocked Trump’s reciprocal tariffs, and U.S. Commerce Secretary Howard Lutnick said recently that the pharmaceutical inquiry would conclude at the end of July.
But a blanket tariff on pharmaceutical imports would only worsen the dangers posed by the United States’ growing dependency on foreign drugs and drug inputs. It would spur disruptions in supplies of essential medicines such as chemotherapy agents, penicillin, and other sterile injectable medications that have low profit margins and are complex to make and difficult to reprice under Medicaid and Medicare rules and long-term hospital contracts. Although Trump hopes this disruption will incentivize a shift to domestic manufacturing, even an 18-month transition period would not be long enough to establish new pharmaceutical manufacturing sites, which can require three to five years to build. In the meantime, patients and caregivers would not be able to access lifesaving medicines.
Overcoming the root causes of the U.S. dependency on foreign drugs instead requires understanding why some critical medicines and pharmaceutical ingredients are no longer made in the United States and why others are at risk of their production moving abroad. And it will mean coming up with effective policies for reversing those trends. Tariffs alone will not solve the problem.
Pharmaceutical manufacturing emerged in the 1930s from the dye and chemical industry and expanded dramatically with the production of antibiotics during World War II. As other labor-intensive industries moved offshore in search of cheaper labor, drug and vaccine makers stayed put for decades, anchored by high startup costs, infrastructure demands, and stringent quality, safety, and efficacy regulations.
This situation began to shift with the advent of low-cost generic medicines in the United States. In 1984, in an effort to increase competition in the U.S pharmaceutical market, lawmakers created an abbreviated pathway for approval of generic versions of drugs by the U.S. Food and Drug Administration: manufacturers would no longer have to redo all the expensive clinical trials that supported the greenlighting of the original drug. U.S. states passed laws permitting and in some cases requiring pharmacists to substitute approved generics in lieu of more expensive branded drugs, if available. In the late 1980s, insurers, pharmaceutical benefit managers, and Medicaid programs followed suit, instituting strong financial incentives for patients to use the cheapest available FDA-approved generic version.
Even with these new business practices and more favorable regulatory requirements, however, the shift from domestic U.S. pharmaceutical products to low-cost imports did not happen overnight. Two decades later, in 2004, generics only accounted for about half of all prescribed drugs in the United States, and India provided just one percent of U.S. pharmaceutical imports. At that point, most generic medicines dispensed in the United States were still manufactured in Europe, in Israel, or at home. In 1994, the United States, EU, Japan, and other advanced economies pushed for and successfully concluded the World Trade Organization’s Agreement on Trade in Pharmaceutical Products to exempt a broad range of these products from tariffs because of their public health importance.
Around 2010, however, a generational business opportunity arose to sell low-cost versions of top drugs. Over the next five years, the U.S. pharmaceutical industry experienced a “patent cliff” when patents expired on many of the top-selling drugs in the history of the pharmaceutical industry, including Lipitor, a statin used to control cholesterol. Suddenly, a large wave of medicines started becoming eligible for sale in generic versions, and by 2016, generics represented 89 percent of all prescriptions filled nationally. Drug manufacturers in China and India rushed to claim a piece of that expanding and lucrative pie. Many U.S. drug makers either formed joint ventures in China and India or dropped out of certain product lines entirely.
The arrival of these low-cost imports transformed the structure of the U.S. pharmaceutical market. Today, generics represent more than 90 percent of Americans’ prescriptions, and Indian pharmaceutical companies supply 47 percent of these generic prescriptions. More worryingly for policymakers in Washington, approximately 70 percent of the active pharmaceutical ingredients used by Indian drug manufacturers come from China.
Although U.S. policies and business opportunities have provided incentives for hospitals, insurers, pharmaceutical benefit managers, and Medicaid and Medicare programs to rely on cheap prescription drug imports, the reasons that foreign firms dominate particular pharmaceutical segments go beyond low labor costs and are often particular to the product class involved.
Environmental concerns in the United States, for instance, have played a significant role in a shift to overseas manufacturing for many older generic products, such as commonly used antibiotics and everyday cardiovascular drugs. Production of active pharmaceutical ingredients often involves chemical reactions such as fluorination and chlorination, with toxic byproducts. In the first decade of this century, Western regulators and news media began to publicize these environmental and occupational harms. News reports described how hormones in the runoff from pharmaceutical manufacturing were feminizing fish and detailed the high concentration of antibiotics discovered in riverbeds and sewage. Amid the resulting outcry, European countries and the United States began mandating environmental risk assessments and adopting new regulations for pharmaceutical manufacturers. By contrast, China and India offered more relaxed environmental laws and more affordable water and power inputs, and the potential for enormous economies of scale as more manufacturing moved to those countries.
By 2021, China accounted for one-fifth of the world’s antibiotics exports and nearly half of global exports of antibiotic ingredients. It had a reported production capacity of 14,000 tons—nearly three times that of India—for amoxicillin, a broad-spectrum penicillin antibiotic prescribed to treat a variety of bacterial infections, including ear, throat, sinus, respiratory, and urinary tract infections, especially in children. Over 20 million prescriptions for amoxicillin are written annually in the United States, sourced from generic producers in Europe, India, Israel, Jordan, and a small facility in Tennessee. But most of those manufacturers rely on APIs made in Chinese facilities in Shanghai and in the coastal provinces of Zhejiang and Jiangsu. If a natural disaster struck there or China withheld amoxycillin API supplies for geopolitical reasons, as it has with rare earth elements, the effects would ripple through every U.S. hospital, pharmacy, and pediatric practice within weeks.
For some critical medicines, U.S. regulatory changes have helped shift production abroad. Take the drug Heparin. Like amoxycillin, heparin is one of those foundational medications that make modern medicine possible. It is best known for preventing coronary disease and heart attacks, but it also works as a blood thinner that inhibits blood clots and pulmonary embolisms. It is used in everything from common surgeries to kidney dialysis to asthma medicines, and as a treatment for COVID-19. For decades, heparin was made with ingredients from cows, until the mad cow disease scare in the 1990s prompted manufacturers and regulators to adopt porcine alternatives. With that change, China, the world’s largest pork producer, also became the dominant supplier of crude heparin.
This has created a critical dependency on China. Millions of U.S. patients use the drug annually, and numerous times, fluctuations in China’s pig population have put the supply at risk. Most recently, the 2019 African swine fever epidemic devastated China’s hog farms and triggered a global shortage of heparin. In 2008, when a Chinese-made heparin API was made with a cheaper synthetic counterfeit that proved toxic, the result was 149 deaths worldwide, including 80 in the United States. Some forms of heparin have been in short supply since 2017, prompting the FDA to reverse course and encourage producers to seek approval for a bovine version.
The United States continues to lead the world when it comes to manufacturing advanced biopharmaceuticals. Drugs for cutting-edge gene and cell therapies are made at sites in California and New Jersey, and insulin, vaccines, and immunotherapy doses are produced in Massachusetts, Michigan, North Carolina, and Puerto Rico. The United States also exports those medicines, with the COVID-19 pandemic boosting global demand for U.S.-manufactured COVID-19 vaccines and monoclonal antibodies.
Yet U.S. regulatory hurdles and the questionable intellectual property and tax policies of other countries have started to erode the U.S. biopharmaceutical advantage. FDA approval processes for early-stage clinical research have become increasingly cumbersome, slow, and costly. The risk-adverse agency, for example, often requires extensive animal testing before researchers move on to Phase 1 clinical trials. As a result, many of those early-stage trials are now conducted abroad, often in China. Once that started, China began using its joint venture requirements and the conditions for its regulatory approval of drugs to compel foreign pharmaceutical companies to share their drug formulations, manufacturing processes, or research data with local firms and regulators. These practices have helped China establish a fast-follower strategy for drug development: Chinese companies replicate American-made innovations with only superficial tweaks or improvements. Heavy government support for AI-enabled biotechnology firms—including BioMap, the life sciences arm of the Chinese multinational Baidu, and WuXi AppTec, China’s leading biomanufacturer—is accelerating China’s emergence as a dominant biotech power. Merck and Pfizer’s recent deals with Chinese biotechnology firms for advanced cancer and cardiovascular therapies worth billions of dollars signal a growing confidence among multinational drug firms in China’s ability to develop and produce novel therapeutic treatments that meet rigorous Western standards.
For many years, Puerto Rico served as a hub of pharmaceutical manufacturing for the United States. But in 2006, the special tax credits that had encouraged Puerto Rico’s industry were fully phased out. As a result, Ireland, Singapore, and other countries began offering tax incentives to lure U.S. pharmaceutical firms into establishing manufacturing operations and subsidiaries within their borders. The result, as the economist and Council of Foreign Relations fellow Brad Setser has shown, is that American firms have shifted production of their most lucrative drugs, which are often developed through research funded by U.S. taxpayers, to low-tax settings abroad just to sell them back at high prices to American consumers. This has led not only to huge trade deficits and lost U.S. tax revenues but also the rise of competitors with highly skilled biopharmaceutical workforces and robust manufacturing bases. The U.S. health system’s reliance on important immunological and weight-loss drugs from abroad is making it less resilient.
The Trump administration wants to use tariffs to address these vulnerabilities in the U.S. pharmaceutical supply chain. And its use of Section 232 of the Trade Expansion Act makes it possible that Trump’s tariffs could last. Indeed, before 2016, the Commerce Department rarely conducted Section 232 investigations, and when it did, it usually concluded that the imports in question did not meet the statute’s requirement of threatening to “impair U.S. national security. The few that did meet that criterion never resulted in tariffs. But the first Trump administration concluded six Section 232 investigations—nearly a fifth of all such inquiries that had been initiated since the federal statute was approved in 1962. In the most high-profile 232 investigations, such as those on aluminum and steel, Trump imposed tariffs. And once in place, none of those tariffs were lifted, not even by the Biden administration.
In the public comment period this past spring, patient groups and pharmaceutical firms almost universally opposed instituting Section 232 pharmaceutical tariffs. But Trump has announced his desired outcome, and U.S. courts have afforded the president broad discretion under Section 232 to impose tariffs with no specified end date. There is also a growing bipartisan consensus in Washington that the dependence on foreign countries in the pharmaceutical sector is a national security risk.
There are ways in which the Section 232 investigation might help improve U.S. pharmaceutical supply chain resilience if appropriately targeted. For starters, a tariff that applies to key starting materials and APIs—not just finished drugs—would actually capture the products where China is dominant and thus U.S. national security at risk. The Section 232 investigation should focus on this category but also recognize that building U.S. manufacturing capacity in this area will take time. To minimize U.S. drug shortages, then, the Section 232 investigation should also differentiate, as past investigations have, between adversaries and allies, exempting critical imports from the latter as “diverse and ‘safe’ foreign suppliers.” Because previous Section 232 penalties have endured, the private sector would likely see such a tariff as durable, which would then justify the cost of sourcing from U.S. and trusted nations’ suppliers.
A 232 tariff might also target and galvanize firms that produce expensive patented drugs to shift that intellectual property from low-tax nations back to the United States, a process that can take months, rather than years. Novartis, Eli Lilly, and other manufacturers of such medicines have already announced longer-term plans to build or expand their U.S. facilities. These expensive innovative drugs are often not covered by Medicaid and Medicare pricing restrictions, which means that the firms may seek to pass along tariff costs to patients and hospitals.
In contrast, imposing high tariffs on essential generic medicines is likely to increase costs for the U.S. health-care system and exacerbate risks of supply disruptions and shortages. Makers of these products cannot easily pass along tariff costs to their customers, and low profit margins, environmental challenges, regulatory requirements, and the need for economies of scale will make it difficult to relocate production to the United States. In other words, tariffs cannot offset the economic and political forces that created vulnerabilities in the pharmaceutical supply chain.
Fixing the national security challenge of overdependence on foreign sources for critical medicines instead requires coordinated action across U.S. government agencies and a strategic mix of policy instruments. Security-minded federal agencies, such as the Department of Defense, and procurement programs, such as the Strategic National Security Stockpile, could enter into limited-term, guaranteed purchase agreements with U.S.-based manufacturers of critical generic medicines. The Biomedical Advanced Research and Development Authority and the Advanced Research Projects Agency for Health, known as ARPA-H, could boost their investments in innovations that enable the creation of smaller, cleaner, and more cost- and energy-efficient manufacturing facilities of key starting materials and APIs. Automation, continuous production, and modular equipment could all lower the manufacturing costs for pharmaceutical production while mitigating the associated environmental risks.
The FDA, meanwhile, should streamline the clinical trial approval process and consistently enforce quality standards for generic medicines; U.S. producers have been often subject to more frequent inspections and exacting oversight than their foreign counterparts, which contributed to an uneven and uncompetitive landscape. The recent launch of unannounced and surprise FDA inspections of foreign manufacturing facilities is a positive development in this regard.
But to protect the U.S. system of biomedical innovation, the Trump administration will have to do more than just level the playing field. The United States has led the pharmaceutical industry because of the collaboration among American universities, entrepreneurs, and large drug firms, and an openness to tapping the best talent from abroad. These attributes have enabled the best ideas to emerge and develop into world-leading, life-changing commercial products. Yet this resource is not inexhaustible; the president risks squandering it through his cuts in funding for the National Institutes of Health, hostility to international students, and attacks on research universities. Diversifying and fortifying the pharmaceutical supply chain is critical, but so is investing in the innovation needed to keep the United States in front.