TRUMP SAYS 200% PHARMA TARIFFS ARE COMING. WALL STREET SHRUGS. / THE WALL STREET JOURNAL

Trump Says 200% Pharma Tariffs Are Coming. Wall Street Shrugs.

A generous grace period would give drugmakers time to sidestep most of the pain

By David Wainer

President Trump floated a grace period for pharmaceutical tariffs at his cabinet meeting Tuesday. Photo: Kevin Lamarque/REUTERS

When a U.S. president threatens your industry with a 200% tariff, that’s not typically good news.

But since Tuesday, when Donald Trump said in a cabinet meeting that imported pharmaceuticals would face a massive levy, investors have been cautiously celebrating. 

Despite a broad stock selloff on Friday, the NYSE Arca Pharmaceutical Index is up around 1% over the past week, compared with a basically flat performance for the S&P 500.

That outperformance may seem puzzling, but for Wall Street, the size of the tariff matters less than the timing. 

The 200% figure lit up cable news chyrons, but investors focused instead on the grace period Trump floated. 

“We’re going to give people about a year, year and a half to come in, and after that, they’re going to be tariffed,” he said.

A year and a half is a long runway—and it could turn out to be even longer in practice. 

In a note titled “Tariffs Schmariffs,” Jefferies analyst Akash Tewari argues that if the grace period begins some time this year and lasts for a year and a half, companies could continue importing drugs tariff-free until 2027. 

They could buy even more time if they stockpile during that period to cover demand at least until some time in 2028. 

That might give them time to build entirely new U.S. manufacturing facilities, which typically takes around four years. 

This doesn’t mean Trump isn’t getting what he wants. 

After all, the tariffs are meant as a threat to push companies to make more of their products in the U.S. And in this case, the threat seems to be working. 

Since Trump began threatening pharma with tariffs, the industry has moved on two fronts. 

First, companies have been stockpiling drugs at a furious pace to build a cushion. 

For instance, the Wall Street Journal reported last month that $36 billion worth of hormone treatments—used in popular obesity and diabetes drugs—have been shipped from Ireland this year, more than double last year’s total.

Second, the industry has announced major investments in U.S. manufacturing. 

Some of that may be political posturing, but much of it reflects a real shift. 

Companies increasingly see no choice but to bring production back, at least for drugs sold to American patients. 

Eli Lilly, for example, has announced a $27 billion plan to expand manufacturing in the U.S.

Making drugs in the U.S.—and registering the intellectual property here—comes with a tax hit. 

That is a big reason the industry offshored production to low-tax countries like Ireland in the first place. 

But Trump’s “Big Beautiful Bill” offers some relief to offset the pain. 

The bill lets companies immediately deduct R&D expenses and equipment purchases and raises the cap on how much interest they can write off—making it a lot cheaper to build new plants at home.

The upshot: with more time to prepare and a friendlier tax environment, pharma companies may barely feel the sting of tariffs. 

Take Merck. 

The company plans to produce a new version of its blockbuster drug Keytruda in the U.S. 

Jefferies estimates that with steps like stockpiling, gradually shifting production and trimming some costs, the hit to Merck’s earnings from tariffs in 2027 and 2028 could be just 1% to 2%. 

That is actually better than Jefferies’s earlier model for a smaller 25% tariff, which assumed fewer workarounds.

The sense of a new normal settling in around Trump’s second presidency might help explain why dealmaking has returned to the sector. 

Merck this past week announced a roughly $10 billion deal to buy Verona Pharma. 

That followed a series of other deal announcements, including Eli Lilly’s $1.3 billion pact to acquire Verve Therapeutics. 

By the end of Trump’s term, the U.S. pharmaceutical supply chain could look very different, with a greater share of innovative drug production happening on American soil.

That would be a rare win-win—for the White House and for the industry.