Pharma Tariffs 2026: How the Section 232 Drug Tariffs Work and Who Pays

The Short Answer

The US pharmaceutical tariffs are import duties on patented medicines and their active ingredients, imposed under Section 232 of the Trade Expansion Act of 1962, which lets the President restrict imports that threaten national security. Presidential Proclamation 11020, issued on April 2, 2026, sets a general rate of 100%, phased in from July 31, 2026, with the final phase in force since September 29, 2026.

In practice, few large companies pay the full rate. Imports from the EU, Japan, South Korea, Switzerland and Liechtenstein are capped at 15% under trade agreements, UK products pay no additional duty, and companies that commit to building US manufacturing, or that also signed drug-pricing agreements with the administration, pay 20% or nothing. Generics and many specialty products are exempt. The tariffs bite hardest on patented products made in other countries, including China and India, by companies without an onshoring deal.

Who Pays What

The proclamation creates a tiered structure. The table summarizes the rates as WilmerHale described them after the final phase took effect.

What the Tariffs Cover

The tariffs apply to patented articles listed in the FDA’s Orange Book (for small-molecule drugs) or Purple Book (for biologics), and to the active pharmaceutical ingredients and key starting materials used to make them, as Crowell & Moring summarized the proclamation. The covered products are listed by tariff code in the proclamation’s first annex.

Two practical consequences follow. First, the duty applies at the border, on the import, so a product made abroad and imported by a US company is covered even if the company is American. Second, ingredients are covered too: a finished drug made in the US from an imported, patented active ingredient can still carry tariff cost through its supply chain. Importers therefore need to map where each ingredient and each finished product is made, not just where the company is based.

What Is Exempt

• Generics. Qualifying generic pharmaceuticals and their ingredients carry a zero additional duty, and biosimilars are also outside the framework for now. On July 21, 2026, the President announced that generics would stay at zero for two years and then face a 100% tariff, rising to 200% a year later; until a formal order implements that plan, the proclamation’s zero rate remains the legal position. WilmerHale cautions importers not to rely only on commercial labels such as “generic” or “biosimilar” and to check each product against the legal definitions.
• Orphan drugs and specialty products. Drugs for indications designated as orphan, nuclear medicines, plasma-derived therapies, cell and gene therapies, antibody-drug conjugates and certain other specialty products can be zero-rated. Products from countries with trade agreements qualify automatically; others need approval from the Commerce Department’s Bureau of Industry and Security based on an urgent US health need.
• Clinical trials and research. Articles imported solely for clinical trials, research and development are zero-rated from September 29, 2026.
• US-origin products and certain listed tariff codes outside the framework’s definitions.

How the Duty Is Calculated

Section 232 duties are ad valorem: a percentage of the customs value of the imported goods, not of the price the medicine sells for in the United States. Under US customs law the customs value is normally the transaction value, the price actually paid or payable for the goods when sold for export to the United States, plus certain additions. Before these tariffs, most medicines and many of their ingredients entered the US duty-free under the WTO Pharmaceutical Agreement, the “zero-for-zero” deal among the US, the EU, Japan, Switzerland, Canada, Norway and Macao (China) that covers more than 10,000 products. For most covered products, the Section 232 duty is therefore effectively the whole tariff.

The table shows the duty on a shipment of a covered patented drug with a customs value of $10 million, assuming no ordinary duty applies.

Because the base is customs value, the transfer price matters. Many patented medicines are imported by an affiliate of the manufacturer at an intercompany price, and Mayer Brown expects the duties to affect transfer pricing strategies and customs valuation. Jones Day lists IP licensing agreements, royalties, intercompany transfer prices and contributed materials and technology as the valuation questions that arise for pharmaceuticals.

Royalties can be part of the base. US customs law adds to the transaction value any royalty or license fee related to the imported goods that the buyer must pay, directly or indirectly, as a condition of the sale of the goods for export to the United States (19 U.S.C. 1401a). Whether a particular royalty is dutiable depends on the facts, including who supplies the product and how the license and supply contracts are linked. In a licensing deal where the licensor or its manufacturer supplies the product, the split between the supply price and the royalty can therefore change the duty bill, and it is worth reviewing with customs counsel before the agreement is signed.

How We Got Here

The tariff policy is closely linked to drug pricing. The same companies negotiating tariff relief were negotiating most-favored-nation pricing agreements, and the proclamation rewards companies that did both. Our guide to most-favored-nation drug pricing covers those agreements.

Onshoring Deals and Investment Pledges

The tariffs were designed to push manufacturing into the United States, and the industry has responded with very large commitments. DPR Construction counted more than $370 billion of planned US investment announced by major drugmakers in 2025. CBRE put 2025 announcements at about $600 billion in multi-year commitments, but found that only about $60 billion was tied to specific amounts and locations.

Company pledges illustrate the scale: Merck has announced more than $70 billion of US manufacturing and research investment, Bristol Myers Squibb $40 billion, Gilead $32 billion, Novartis $23 billion for 10 US facilities and Sanofi at least $20 billion through 2030, while Pfizer, Johnson & Johnson, Roche and AstraZeneca have each announced $50 billion or more. BeOne Medicines, the China-founded oncology company, announced a $300 million expansion in New Jersey that takes its total US manufacturing investment past $1 billion, and has signed an onshoring agreement with the US government. In October 2026 Bayer announced a $2.2 billion manufacturing site in Ohio.

Under the proclamation, a company needs a Commerce-approved onshoring plan to qualify for the 20% rate, and the Bureau of Industry and Security requested applications by June 12, 2026, though later applicants may still be able to apply. Commerce can raise rates for companies that fail to meet their onshoring or pricing commitments, so the pledges carry real obligations.

The Country Deals

EU, Japan, South Korea, Switzerland and Liechtenstein. Trade agreements cap the total tariff on covered pharmaceuticals from these countries at 15%. Because Ireland, Switzerland and Germany are among the largest exporters of medicines to the US, this cap covers a large share of US pharmaceutical imports.

United Kingdom. Under the agreement reached in December 2025, UK pharmaceutical products face no additional Section 232 duty. In return, the UK agreed to pay more for innovative medicines through the National Health Service and to allow the approval of medicines that might previously have been rejected on cost-effectiveness grounds alone.

Everyone else. Countries without an agreement, including China and India, face the general 100% rate on covered patented products unless the importing company has its own exemption. Because India’s exports to the US are mainly generics, which are exempt, the practical impact falls most heavily on patented products and ingredients.

What It Means for Licensing Deals

For business development, the tariffs turn manufacturing location into a valuation issue. When a company licenses or acquires a patented drug for the US market, it now has to ask where the active ingredient and the finished product will be made, what rate will apply on import, and who bears that cost.

• Valuation. A 100% duty on imported supply can erase the margin on a product. Buyers are adjusting forecasts for tariff exposure, which feeds directly into the risk-adjusted valuations described in our rNPV valuation guide.
• Technology transfer. Licensees increasingly ask for the right, and the licensor’s help, to move manufacturing to the US or a partner country, with timelines and cost sharing written into the agreement.
• Supply agreements. Where the licensor supplies product, contracts need to say who pays duties, how prices adjust if rates change and what happens if an exemption is lost.
• Modality matters. Orphan drugs, ADCs and cell and gene therapies can be zero-rated, so the tariff impact differs sharply between, say, a rare-disease asset and a high-volume small molecule.

Our cross-border term sheet guide covers how supply and technology-transfer terms are usually drafted, and our guide to CDMOs explains the manufacturing partners involved.

The China Angle

Chinese companies are now one of the largest sources of drugs licensed by Western pharma; Chinese out-licensing reached a record of roughly $136 billion in total deal value in 2025, according to our China Out-Licensing Report 2026. China has no tariff agreement covering pharmaceuticals, so a patented drug or active ingredient made in China and imported by a company without an exemption faces the full 100% duty.

Many large Western licensees qualify for reduced rates through their own onshoring or pricing agreements. But the tariffs add a second policy layer to the BIOSECURE Act, and together they make the manufacturing plan a central part of any deal for a China-originated asset. Chinese-founded companies building US capacity, such as BeOne, which has signed an onshoring agreement with the US government, are positioning themselves on the right side of both.

What It Means for Emerging Biotechs

The tariffs began on July 31, 2026 with 17 large manufacturers named in the proclamation and reached mid-sized and smaller drugmakers on September 29, 2026. For an emerging biotech, the impact depends on its stage.

• In clinical development. Products imported solely for clinical trials, research and development or other non-commercial use carry a 0% additional duty, so trial supply made abroad is not affected.
• At launch. Small biotechs typically rely on contract manufacturers, as the Biotechnology Innovation Organization (BIO) told Commerce. A first commercial product made outside the US and its partner countries, and imported by a company without an onshoring plan, faces the full rate. New US facilities can cost up to $2 billion and take five to ten years to build, so the realistic options for most emerging companies are a contract manufacturer in the US or a partner country, or a partner that already has its own agreements.
• Contract capacity. Gil Roth, president of the Pharma & Biopharma Outsourcing Association, has warned that the 17 companies with onshoring and pricing deals can build their own plants, but “the next 1,700 companies after them cannot afford to build their own operations and own facilities.” According to PharmaSource, contract manufacturers disclosed nearly $18.5 billion of US capital spending in 2025, but only $3.9 billion worldwide in the first half of 2026, so US capacity may tighten as demand rises.
• Rare disease and advanced modalities. Orphan drugs, cell and gene therapies and ADCs can be zero-rated, which narrows the exposure for many emerging biotech portfolios.
• When partnering. A large licensee with its own onshoring and pricing agreements may be able to import at 0% or 20% where a small company would pay 100%. That strengthens the case for partnering a product for the US market rather than launching alone, and it gives licensees another point of leverage in negotiations.

For US biotechs weighing partners in Asia or Europe, our playbook for out-licensing Asia rights covers how regional deals are structured.

How Importers Reduce the Cost

Beyond onshoring, WilmerHale lists several established customs tools that can reduce or defer the duty:

• Classification review: mapping each import by tariff code, patent status, country of origin, ingredient origin and intended use, and documenting the treatment chosen.
• Duty drawback: the proclamation allows recovery of the duties when goods are later exported or destroyed.
• Temporary importation under bond: no duty if the goods are exported or destroyed in time.
• Foreign trade zones: duties deferred until goods enter US commerce, with special status rules for these products.
• Prototype provisions: certain products for development, testing or quality control can be excluded.

Any change to supply chains also has to be checked against FDA requirements, pricing commitments and supply continuity, which is why these decisions usually involve regulatory, commercial and legal teams together.

What to Watch Next

• Generics. Commerce must advise the President by April 2027 on whether tariffs should extend to generic drugs and their ingredients, and the July 2026 announcement points to a 100% tariff on generics from August 2028 and 200% from August 2029 if it is formally implemented.
• Onshoring approvals and enforcement. How strictly Commerce approves and audits onshoring plans will decide how many companies keep the 20% rate.
• The 2029 and 2030 cliffs. The zero rate for companies with pricing agreements runs to January 20, 2029, and the 20% onshoring rate to April 1, 2030.
• Medical devices. Section 232 investigations into personal protective equipment, medical consumables and medical devices are also under way.

The Bottom Line

The Section 232 pharmaceutical tariffs set a 100% headline rate but are built around exceptions: 15% for major trading partners, zero for the UK, 20% or zero for companies that onshore and sign pricing deals, and exemptions for generics and many specialty products. Their real effect is to make manufacturing location a core business question, for big pharma, for biotechs supplying their partners and, above all, for cross-border licensing deals involving products made outside the US and its partner countries.

If you are licensing an asset into the US and need the supply chain, tariff exposure and deal terms worked out together, talk to our team.