The US is India’s biggest pharma export destination accounting for one-third of our pharma exports. India mainly exports ‘high-volume low-cost’ medicines, with thin profit margins, to the US. Hence, any change in costs like additional tariffs can hurt rather quickly. Higher tariffs will lead to increased prices of medicines in the US, which may reduce the demand for such products — trade depletion effect of increasing tariffs, that is. Trade diversion will happen if some of the existing imports of the US shift from one country (high tariff) to another (low tariff) owing to the US imposed tariff differentials. The actual impact of increased tariffs on the Indian pharma industry will depend on how big or small the trade depletion and trade diversion effects are. Unlike Ireland or Switzerland that export expensive and life-saving patented drugs to the US, most of the Indian pharma exports to the US are generic drugs. The substitutability between Indian generic drugs and these patented drugs is low. Hence, any differential tariff between India and other exporters is unlikely to shift exports from one country to another. Therefore, the trade diversion effect of increased tariffs is likely to be less for Indian pharma industry. Also, most of the Indian pharma exports to the US have relatively inelastic demand. These are necessary goods and available at low prices in the US. Hence, any tariff led price increase is likely to be absorbed by the US consumers without a significant reduction in demand. Thus, the trade depletion effect on the Indian pharma industry is also likely to be less. Thus, both trade depletion and trade diversion effects would be of lesser magnitude for Indian pharma exporters. The overall impact of increased tariffs on pharma exports would be less than on other products, such as automobiles or textiles, which have high elasticity and are considered as luxury or fashion goods. Silver lining for India The impact on tariff hike on the Indian pharma industry is likely to be short lived for two reasons. First, higher tariffs will pinch American consumers who are significantly dependent on Indian generic medicines. According to reports, four out of ten medical prescriptions in the US are for medicines from India. The low prices of Indian generic medicines helped US consumers save more than $200 billion in 2022. The same US citizens who are convinced of greater job opportunities from higher tariffs on imports may turn against Trump once imported medicines become costlier and unaffordable. The limited manufacturing of pharma products in the US may also suffer if the tit-for-tat tariff war continues between the US and China. Since China is a major producer of active pharmaceutical ingredients (API), the increase in tariff on imports of API from China will lead to higher cost of drug manufacturing in the US. As a consequence, some of the drugs manufactured in the US may become uncompetitive vis-a-vis substitutable products from other countries including India. Trump recently exempted from tariff hikes mobile phones, computers, chips, and other items important for its tech industry. If he imposes tariffs on pharma products, there is high chance that either these will be of low magnitude or will be rolled back sooner than later. India Inc should, however, be ready for any tariff eventuality in future. The government, through the Production Linked Incentive (PLI) scheme, is helping companies build local API production facilities. This will help lower the need for imports from China and give companies better control over costs. Those who invest in making ingredients locally will be better prepared for future tariff challenges. Gupta is Associate Professor, and Naaz is Consultant, at Centre for WTO Studies, IIFT, New Delhi Published on April 16, 2025