Trump Tariffs Spare Drugmakers But Threaten Diabetes Device Industry
President Donald Trump announced tougher-than-anticipated tariffs on Wednesday, but there are some notable exemptions.
Trump excluded pharmaceuticals from the new tariffs, likely a relief for the industry under pressure following his prior comments suggesting a 25% tariff on pharmaceutical imports.
“The United States can no longer produce enough antibiotics to treat our sick,” Trump said Wednesday. “We have a tremendous problem, we have to go to foreign countries to treat our sick. If anything ever happened from a war standpoint, we wouldn’t be able to do it.”
The biopharma industry has historically been shielded from tariffs, including during Trump's first term. Investors had feared global tariffs could disrupt the sector, given its significant manufacturing presence in Europe. The Morningstar report says that with the U.S. importing approximately $200 billion in pharmaceuticals in 2024, a 10% tariff could have resulted in a $20 billion cost to the industry, with some of the largest firms facing annual tariffs of up to $1 billion.
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Per the Morningstar report on Thursday, a future global tariff on pharmaceuticals remains a risk despite the exemption, potentially pressuring gross margins and long-term tax rates. Companies may need to adjust their manufacturing strategies, though large-cap biopharma firms are expected to maintain strong economic positions. Tariffs could drive near-term margin pressures and lead to long-term U.S. manufacturing investments.
However, new facilities would take years to gain approval, especially with ongoing FDA staff reductions affecting inspections. If U.S. manufacturing increases, corporate tax rates could rise closer to the current 21% rate – a level Trump aims to maintain through the Republican-controlled Congress.
However, the medical device industry has not been spared, with diabetes device makers appearing to be the hardest hit.
Diabetes device manufacturers, including Dexcom Inc (NASDAQ:DXCM), Insulet Corporation (NYSE:PODD) and Tandem Diabetes Care, Inc (NASDAQ:TNDM) are among the most affected.
Larger cardiac and orthopedic device makers, such as Boston Scientific Corporation (NYSE:BSX), Edwards Lifesciences Corporation (NYSE:EW) and Zimmer Biomet Holdings, Inc (NYSE:ZBH) have seen minimal share movement and are expected to shift manufacturing to mitigate tariff effects.
The report notes that among diabetes device makers, Tandem Diabetes appears particularly vulnerable due to its reliance on foreign components and manufacturing, limiting its ability to shift production.
The sector could face further challenges if European competitors, such as Roche Holdings AG (OTC:RHHBY) and Ypsomed, gain an advantage or if Europe imposes reciprocal tariffs, intensifying competitive pressures.
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