Pharma exports: No bliss in the Trump era
U.S. tariffs and pricing demands on pharmaceutical giants upend Swiss trade and global drug supply chains.
In a nutshell
- The Swiss economy is in shock from U.S. tariffs and unrequited diplomacy
- Pharmaceutical firms face a short deadline to drastically cut U.S. drug prices
- Global supply chains may fracture, triggering innovation slowdowns
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Friday, August 1, was Switzerland’s National Holiday, but this year there was little to celebrate – neither for the Swiss nor for the pharma industry worldwide. The day began with 17 of the world’s largest pharmaceutical companies, including Swiss giants Novartis and Roche, coming to terms with United States President Donald Trump’s just-delivered ultimatum letters demanding “binding commitments” to slash U.S. drug prices by September 29 or face the full force of government retaliation.
Hours later, the White House announced a punishing 39 percent tariff on Swiss imports – more than double the 15 percent rate imposed on European Union goods.
Swiss President Karin Keller-Sutter, along with Guy Parmelin, the Swiss economy minister, flew to Washington the following Tuesday in hopes of meeting with President Trump or his team to come to an agreement to stave off the trade measures. Ms. Keller-Sutter, however, departed for home on Wednesday without even meeting Mr. Trump, let alone having made a deal. The following day, the tariffs took effect.
Switzerland’s annual exports to the U.S. across all sectors of the economy totaled $81 billion (65.3 billion Swiss francs) last year. The Alpine country is a net exporter to the world overall, and specifically to the U.S. Its trade surplus with the U.S. is approximately $48 billion. More importantly, the U.S. is Switzerland’s largest trading partner and export market.
The pharmaceutical sector is temporarily excluded from the 39 percent Swiss tariff, but that provides only limited relief, as the industry remains at risk of separate levies that could reach 200 percent under President Trump’s Section 232 national security investigation. This investigation, launched earlier in 2025, reflects the administration’s view that pharmaceutical imports pose a potential threat to U.S. national security. This designation breaks with decades of precedent treating medicines as exempt from trade wars due to their essential role in public health.
Switzerland’s economy relies heavily on pharmaceutical exports. The sector contributes 5.4 percent of the country’s gross domestic product (GDP) and accounts for 40 percent of total exports worth over 100 billion Swiss francs annually.
Not just a Swiss question
The Swiss government, which had expected tariff rates around 10 percent based on July negotiations, expressed being “stunned” and “disappointed” by President Trump’s decision. Pundits swiftly began shifting the blame to President Keller-Sutter, but this appears baseless.
President Trump’s move does not target Switzerland – at least not per se. Instead, it takes aim at the global pharmaceutical industry. Switzerland just happens to have considerable exposure to that sector. Not to forget: The country has been collecting the premium from this exposure for many years. As it usually goes, every premium has associated risks. The new American trade measures are a manifestation of those risks.
President Trump is trying to make good on a promise he made to American voters during the election. He wants to restructure subsidy-based programs like Medicaid and Medicare because he sees them as ineffective and inefficient. He also wants to lower drug prices. The U.S. is one of the countries with the highest medication prices in the world.
So, on July 31, the White House’s drug pricing ultimatum reached 17 major pharmaceutical companies – including AbbVie, Amgen, AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Eli Lilly, EMD Serono, Roche’s Genentech subsidiary, Gilead, GSK, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Pfizer, Regeneron and Sanofi. This letter was also sent to U.S. producers.
Unpacking the Trump pharma strategy
The scope of President Trump’s demands reveals the administration’s determination to fundamentally restructure the pharmaceutical market. Companies must provide so-called Most Favored Nation (MFN) prices across Medicare, Medicaid and commercial payers, and sell drugs directly to U.S. patients, thereby eliminating pharmacy benefit managers (PBMs) − third-party administrators of prescription drug programs for insurers and healthcare providers − from the equation.
An MFN clause requires one party to offer another the best terms it gives to any other party. Mr. Trump’s ultimatum ties U.S. drug prices to the lowest prices paid in other developed countries, effectively forcing pharma firms to offer the U.S. their best global rate or face regulatory action. This aims to reduce domestic drug costs by leveraging the lower prices negotiated abroad.
Facts & figures
President Trump’s 2025 ultimatum targets PBMs by eliminating the rebates and opaque pricing structures they use, which often inflate drug costs. Instead, the policy mandates direct pricing negotiations between drug manufacturers and Medicare, bypassing PBMs entirely. By removing these intermediaries, the plan seeks to expose and decrease markups, enforcing price transparency and thereby lowering drug prices for consumers.
Companies that do not comply with the ultimatum’s demands will face regulatory pressure. Companies domiciled outside the U.S. will face higher tariffs. The timing of the ultimatum, coinciding with the administration’s Swiss tariff announcement, suggests a coordinated strategy to maximize pressure on the pharmaceutical industry through multiple channels.
Accelerating global supply chain fragmentation
The stark disparity between Switzerland’s 39 percent overall tariff rate and the EU’s 15 percent rate has created an unprecedented situation where geographic location within Europe now determines the cost of accessing the U.S. market.
While the ultimate level of tariffs on pharmaceutical exports to the U.S. will be set by the Trump administration in the near future, companies with significant Swiss operations, including Novartis and Roche, may face substantially higher costs for access to the American market compared to competitors with EU-based manufacturing. This geographic arbitrage threatens to distort investment and production decisions across the European pharmaceutical sector. The situation is further complicated by pharmaceutical products being part of complex, globally interconnected supply chains, where components and active pharmaceutical ingredients cross multiple borders before reaching final markets.
The U.S.-China trade tensions continue to reverberate throughout the global pharmaceutical supply chain, creating additional pressures that compound the challenges faced by European companies. Chinese pharmaceutical firms, including major players like WuXi AppTec and WuXi Biologics, have been forced to significantly alter their operations in response to trade pressures, with consequences that extend far beyond bilateral U.S.-China trade.
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The scope of disruption in Chinese pharmaceutical operations provides a preview of the challenges that may await European companies if trade tensions continue to escalate. WuXi AppTec and a Chinese biotechnology client agreed in May to switch from U.S.-made reagents to non-U.S. versions for a Hepatitis B virus pre-clinical research project, temporarily pausing the project during the transition. This type of supply chain restructuring, driven by trade policy rather than economic efficiency, represents a shift away from the globalized model that has characterized the pharmaceutical industry for decades.
The uncertainty created by rapidly changing trade policies has led to increasingly conservative business decisions throughout the industry. Chen Gong, co-founder of NeuExcell Therapeutics, captured the industry’s predicament in his observation that “what kind of long-term policy it could be, you know, what kind of tariff would it be in half a year, in one year… nobody knows. And that’s the problem. That’s what makes everybody worry and nervous.”
Companies are responding to this uncertainty through a combination of stockpiling, supply chain diversification and geographic restructuring of operations. At least 17 Chinese biotech and pharmaceutical clients have contacted Chinese cell culture media manufacturer JS Biosciences, requesting locally produced backup raw materials due to concerns over rising costs and supply access. This shift toward supply chain localization, while potentially reducing trade policy risks, threatens to increase costs and reduce the efficiency gains that have driven pharmaceutical innovation for decades.
Scenarios
Most likely: Negotiated middle ground on drug prices
The most likely outcome of Washington’s new approach to drug pricing involves a sophisticated compromise that emerges after months of intense negotiations. Pharmaceutical companies will propose a graduated MFN system tied to market access commitments, where pricing concessions are linked to regulatory streamlining and intellectual property protections. Swiss companies will offer 25-35 percent price reductions on select high-volume medications while maintaining premium pricing for breakthrough therapies.
Tariffs on Swiss medications are likely to be reduced to 20 percent pending final resolution of pharmaceutical negotiations, creating a temporary but workable framework. Companies strategically restructure their supply chains by relocating some manufacturing to EU facilities to avoid the higher Swiss tariffs while maintaining research (R&D) and development centers in Basel and Zurich. This partial fragmentation increases operational complexity but helps preserve core competencies.
Innovation suffers moderate constraints as companies redirect resources toward regulatory compliance and supply chain optimization. R&D spending decreases by about 10 percent, with a particular impact on rare disease research, where market incentives are already marginal. Patient benefits are mixed: Popular medications see meaningful price reductions of up to 30 percent, but newer therapies remain expensive as companies focus discounts on older, high-volume products.
The interconnected global system adapts through increased regionalization, with companies developing separate pricing strategies for different markets. This results in administrative overhead but allows for more targeted approaches to drug development and distribution, potentially improving access in emerging markets while maintaining innovation incentives in developed economies.
Possible: Swift compliance and global race to the bottom in pricing
In this scenario, pharmaceutical companies capitulate to President Trump’s demands by the September 29 deadline, implementing MFN pricing across all U.S. markets. Swiss companies Novartis and Roche lead the charge, announcing comprehensive price reductions of up to 60 percent on key medications, while simultaneously committing to eliminating PBMs from their U.S. distribution chains.
The immediate result is a dramatic reduction in Swiss tariffs from 39 percent to 15 percent, matching the EU rate, as President Trump declares victory in his pharmaceutical pricing crusade. Supply chains remain largely intact as companies absorb the revenue hit through operational efficiencies and reduced marketing expenditures. Innovation continues, though at a slower pace, as R&D budgets are trimmed by up to 20 percent industry-wide.
For patients, the benefits are substantial and immediate. Insulin prices could drop from $300 to $120 per month, cancer treatments could become 50 percent more affordable, and Medicare could save $200 billion annually. However, this scenario creates a precedent for other countries to demand similar pricing concessions, potentially triggering a global race to the bottom in pharmaceutical pricing.
The interconnected nature of global drug development means that decreased U.S. revenues ultimately constrain innovation pipelines worldwide, with fewer breakthrough therapies reaching clinical trials by 2027.
Least likely: Pharma ecosystem fragmentation catastrophe
In this least likely scenario, pharmaceutical companies refuse to comply with President Trump’s ultimatum, triggering the full arsenal of U.S. regulatory retaliation. Swiss tariffs remain at 39 percent, while pharmaceutical-specific tariffs reach the threatened 200 percent under Section 232 national security provisions. The result is a complete fracturing of the global pharmaceutical ecosystem.
Supply chains collapse as companies scramble to relocate manufacturing and research facilities. Novartis and Roche announce emergency relocations of key operations to Ireland and Singapore, while U.S. companies like Pfizer and Merck establish parallel European entities to serve non-U.S. markets. The interconnected web of pharmaceutical development, where a single drug might involve research in Switzerland, manufacturing in Ireland and clinical trials across multiple continents, disintegrates into regional silos.
Innovation suffers catastrophically as the industry’s collaborative model breaks down. R&D spending plummets by as much as 40 percent as companies focus on survival rather than breakthrough research. The loss of economies of scale in drug development means that rare disease research virtually disappears, while even common conditions see reduced investment in next-generation therapies.
For patients, the consequences are severe and asymmetric. U.S. patients face sharp price increases of 100-300 percent on foreign-manufactured drugs, while European patients experience shortages as companies prioritize more profitable markets. The global pharmaceutical supply chain, optimized over decades for efficiency and specialization, proves remarkably fragile under political pressure, leading to drug shortages, quality control issues and a return to the pharmaceutical nationalism seen in the 1960s.
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