[Reporter's View] Preparations for US pharmaceutical tariff

US President Donald Trump designated April 2 (local time) as 'America's Day of Liberation.' The day the US will announce reciprocal tariff rates for various countries.

 

US reports expect details on tariff-affected countries, rates, and applicable product categories to be disclosed as early as the evening of the 1st.

 

The specific tariff rates will be known in South Korea by the morning of the 2nd or, at the latest, the morning of the 3rd in Korean time.

 

The United States is Korea's largest market for pharmaceutical exports.

 

Last year, Korean pharmaceutical exports to the US reached US$1.359 billion (approximately KRW 2 trillion), a 50% increase compared to 2023.

 

When expanded to include the broader market, exports have surged from US$33 million a decade ago in 2014 to over 40 times that amount.

 

The US accounted for 18% of Korea's total pharmaceutical export revenue last year, making it the largest single market among all countries.

 

This fact underscores why US tariffs on pharmaceuticals could have a significant impact.

 

Industry attention is now focused on whether Korean pharmaceuticals will also be subject to tariffs, and if so, which specific drugs and at what rates.

 

A 25% tariff rate is the most likely scenario.

 

During a press conference on March 18, President Trump even hinted that pharmaceutical tariffs 'could be 25% or more.' However, it remains unclear whether the forthcoming reciprocal tariff announcement scheduled for April 2 will include pharmaceuticals, or if tariffs on pharmaceuticals will be imposed separately.

 

Some analysts predict that pharmaceuticals might be excluded from the tariff measures, arguing that imposing tariffs on them would likely lead to a surge in domestic healthcare costs.

 

Indeed, recent projections indicate that the number of drugs experiencing supply shortages in the US could exceed 215 (up from 127), and US generic drug prices may increase by an average of 18%.

 

One report even warned that US healthcare spending could skyrocket from a baseline of 5% to as high as 60%.

 

Another opinion suggests that tariffs could be applied only selectively, targeting certain countries with large trade deficits, such as some European nations, or excluding critical categories like essential or supply-shortage drugs.

 

Nonetheless, prevailing forecasts still lean toward the imposition of pharmaceutical tariffs.

 

Should tariffs be levied on domestically produced drugs, it could deliver a severe hit to Korea's pharmaceutical and biotech industries.

 

Companies are left with few options and must concentrate on creating exit strategies.

 

The Trump administration has reiterated a 'tariff first, negotiate later' approach.

 

Even if tariffs are eventually imposed on Korean pharmaceuticals, there remains potential to mitigate the impact through subsequent negotiations.

 

Despite South Korea being identified as a 'notorious trade imbalanced country,' industry negotiators argue that it is important to emphasize that Korea has consistently run a trade deficit with the US in the pharmaceutical sector.

 

In the medium to long term plan, South Korea must also accelerate reforms in its drug pricing and innovative pharmaceutical company certification systems.

 

The United States Trade Representative (USTR) has previously released a report stating that Korea's drug pricing policies and innovative pharmaceutical company certification system disadvantage foreign companies.

 

Both systems are currently undergoing revisions, and if given the opportunity to negotiate with the US, South Korea should actively highlight these improvements at the bargaining table.