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Trump’s Tariff Threats Target Big Pharma, But Tax Reforms May Hold the Key to U.S. Manufacturing Growth

by Team Lumida
May 7, 2025
in Markets
Reading Time: 5 mins read
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Fed Official Warns of Inflation Risks Under Trump Presidency

"Donald Trump" by Gage Skidmore is licensed under CC BY-SA 2.0

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Key Takeaways:

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  • President Trump’s proposed tariffs on the pharmaceutical industry aim to bring more drug production back to the U.S., but experts argue that tax reforms could be a more effective long-term solution.
  • Pharma companies historically moved offshore not for cheap labor but to benefit from lower corporate tax rates in countries like Ireland, which offered a 12.5% rate compared to the U.S.’s pre-2017 rate of 35%.
  • Trump’s 2017 tax reforms, which lowered the U.S. corporate tax rate to 21% and introduced a minimum tax on foreign earnings, have already made U.S. production more attractive.
  • Industry leaders, including CEOs from Eli Lilly, Pfizer, and Johnson & Johnson, are pushing for further tax incentives, such as a 15% tax rate for U.S. manufacturing, restored R&D deductions, and more favorable interest deductions for domestic facility investments.
  • Generic drug production, which has largely shifted to India and China, poses a unique challenge due to its low margins. Tariffs on generics could worsen drug shortages and quality issues in the U.S.

What Happened?

President Trump’s administration is ramping up pressure on the pharmaceutical industry with proposed tariffs aimed at reshoring drug production. While tariffs have prompted some companies to expand U.S. operations, experts argue that tax reforms would be a more sustainable way to encourage long-term investment.

Pharma companies have historically moved operations offshore to benefit from lower tax rates, not cheaper labor. Trump’s 2017 tax reforms reduced the corporate tax rate and introduced measures like the Global Intangible Low-Taxed Income (GILTI) regime, which taxed foreign earnings. However, loopholes still allow companies to report U.S.-generated profits in low-tax jurisdictions.

Congress is now considering additional tax incentives, such as a 15% tax rate for U.S. manufacturing and restored R&D deductions, to further boost domestic production. At the same time, policymakers are exploring ways to tighten GILTI rules to ensure they apply only to genuinely foreign profits.


Why It Matters?

The pharmaceutical industry is one of the few sectors where reshoring is feasible due to its high margins and reliance on intellectual property rather than cheap labor. However, tariffs alone may not be enough to drive meaningful change.

Tax reforms, such as lowering the tax rate for U.S. manufacturing and restoring R&D incentives, could provide a more effective and sustainable framework for reshoring. These measures would not only encourage investment but also ensure that profits are reported and taxed in the U.S.

For generic drug production, which has largely moved to India and China, tariffs could exacerbate existing issues like drug shortages and quality concerns. Direct financial support from the government may be necessary to bring portions of this industry back to the U.S.


What’s Next?

Pharma companies have already announced significant U.S. investments, with Eli Lilly, Roche, and Johnson & Johnson pledging a combined $132 billion to expand domestic operations. However, the sustainability of these investments will depend on whether Congress enacts further tax reforms.

Policymakers will also need to address the unique challenges of the generic drug industry, potentially through targeted financial support or incentives. The outcome of these efforts will shape the future of U.S. pharmaceutical manufacturing and its ability to compete globally.

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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018