On the 2nd (local time), U.S. President Donald Trump signed an executive order imposing tariffs of up to 100% on imported pharmaceuticals. However, a 15% rate applies to pharmaceuticals produced in countries that have trade agreements, including South Korea.

In a fact sheet released that day, the White House stated that, under Section 232 of the Trade Expansion Act, it will impose a 100% tariff on imported patented pharmaceuticals and inputs. The tariff is scheduled to take effect for large pharmaceutical companies in 120 days and for small and mid-sized pharmaceutical companies in 180 days.

Generic drugs and biosimilars, and their inputs, will be excluded from tariffs for one year, after which whether to extend the exclusion will be reviewed. Treatments for rare diseases are also excluded from this tariff measure in light of public health needs.

A 15% exception tariff applies to South Korea, Japan, the European Union (EU), Switzerland, and Liechtenstein, which have trade agreements with the United States. The United Kingdom is subject to a separate tariff arrangement.

For pharmaceutical companies that relocate production facilities to the United States, the tariff is reduced to around 20%. If a company also concludes a most-favored-nation (MFN) drug pricing agreement with the U.S. Ministry of Health and Welfare to align the prices of medicines supplied to the United States with the lowest prices it charges in other countries, it is eligible for a 0% tariff. To date, 14 pharmaceutical companies, including Pfizer, AstraZeneca, Novartis, and GSK, have concluded MFN agreements with the United States.

The Trump administration had earlier warned of imposing 100% tariffs on pharmaceuticals and pressed global drugmakers to increase investment in production facilities in the United States. In the fact sheet, the White House touted the outcome, stating “We have already elicited investment pledges of about $400 billion (about 560 trillion won) from pharmaceutical companies inside and outside the United States through the tariff announcement alone”.

A senior Trump administration official, ahead of the proclamation signing, said on a press call that “Even for companies subject to the 100% tariff, if they draw up plans to build production facilities in the United States and receive approval from the Department of Commerce during the 120~180 day implementation grace period, the rate can be reduced to 20%”, adding, “However, in that case the plant must be completed by January 2029”. He added regarding the production scale that can qualify for the tariff reduction benefit, “To sell 1 million tablets in the United States, the plant must be able to produce 1 million tablets”.

Section 232 of the Trade Expansion Act, which provided the basis for imposing these pharmaceutical tariffs, is a provision that allows the president to restrict imports or impose tariffs when specific imports are judged to threaten United States national security. It sets no limit on the tariff duration or a ceiling on the rate.

The White House explained, “According to a Department of Commerce investigation, the United States ranks first in the world in innovative new drug research·development, but actual manufacturing relies heavily on imports, so access to essential medicines could be cut off if the supply chain collapses. Accordingly, this was deemed a factor that threatens national security”.