U.S.-India Trade Tensions Loom as Pharma Tariff Shield Faces Uncertainty

The U.S.'s recent 27% reciprocal tariff on Indian exports, excluding pharmaceuticals, has sparked concerns over future trade actions potentially impacting Indian drug exports. Despite current exemptions, analysts warn that the Trade Expansion Act of 1962 could impose future duties, potentially disrupting the vital flow of affordable generics to the U.S.

The imposition of a 27% reciprocal tariff by the United States on Indian exports has ignited apprehension within the trade community, particularly concerning the future of Indian pharmaceutical exports. Unlike other sectors, the pharmaceutical industry was spared from the initial tariff onslaught, but experts warn this reprieve may not endure.

The Trade Expansion Act of 1962 empowers the U.S. President to alter international trade tariffs, including introducing new import duties. While Indian pharmaceuticals escaped the first wave of tariffs, concerns linger over a potential shift in this policy. HDFC Securities indicates the duty exemption may be temporary, given pressures like price hikes for generic medicines and supply chain issues.

Indian generic drug manufacturers are pivotal to the U.S. healthcare infrastructure, supplying nearly 40% of its imported generic drugs. In the 2024 fiscal year, U.S.-bound Indian pharmaceutical exports were valued at approximately USD 8 billion, demonstrating a healthy 8% CAGR from FY15 to FY24. Despite the current tariff shield, Indian pharma stocks have dipped nearly 10% over three months, reflecting market jitters.

The stakes are high. Should the U.S. impose tariffs on Indian pharmaceutical products, both economies could suffer. The U.S. benefits from affordable Indian generics, essential for keeping healthcare costs in check. Tariffs could inflate drug prices, exacerbating U.S. healthcare inflation. Indian manufacturers, straddled by thin margins, might not bear the costs without transferring them, risking drug shortages and profit erosion.

The Indian pharmaceutical industry's role in the U.S. market remains critical, underlined by its provision of cost-effective generics. Future tariffs might destabilize this equilibrium, impacting drug affordability in the U.S. and the financial health of Indian pharmaceutical companies.

(With inputs from agencies.)