New Tariff on Pharmaceuticals Amidst US-Korea Trade Agreement Brings Mixed Reactions
Despite concerns over new tariffs on pharmaceuticals, the atmosphere is one of cautious optimism due to the limited anticipated impact on the industry. As the US continues its strategy of countering China and implementing policies to lower drug prices, there is hope for enhanced competitiveness of Korean companies.
Recently, it was announced that the US-Korea trade negotiations had concluded with the US setting reciprocal tariffs at 15%. This outcome, marked by the status of most-favored-nation negotiations, offers a sense of relief but also mixed expectations within Korea’s pharmaceutical and biotechnology sectors.
On the 31st, entities like the Korea Pharmaceutical and Bio-Pharma Manufacturers Association expressed relief about the agreement. Through these negotiations, South Korea agreed to establish a $350 billion investment fund in the US. In exchange, the US agreed to reduce the reciprocal tariffs on Korean exports from 25% to 15%. Of the investment fund, $150 billion is earmarked for the shipbuilding industry, while the remainder is allocated to sectors like semiconductors, secondary batteries, biotechnology, and energy. The 15% tariff is consistent with rates previously agreed upon with Japan and the European Union.
The pharmaceutical and bio industries view the 15% tariff as a favorable advancement towards their global expansion efforts, aligning with the principle of most-favored-nation treatment. It places them in a competitive or advantageous position compared to other countries. Since the previous minimum reciprocal tariffs were at least 25%, the influence of this final agreed tariff rate is expected to be limited as many Korean pharmaceutical companies currently have a small US export-import ratio. Companies like Samsung Biologics, Celltrion, and SK Biopharm are continuing US trade involving biosimilars and new drugs, having already secured contract manufacturing facilities locally or considering acquiring production setups. Since tariffs are shouldered by importers, local contract manufacturing incurs no direct impact.
A concern exists regarding potential confusion, as pharmaceuticals were not traditionally subject to tariffs in US-Korea trade. Both countries foresee short-term issues like weakened price competitiveness, rising production costs, and supply chain disruptions. In the US, increased drug prices, supply shortages, and reduced patient access are predicted side effects.
The Trump administration has yet to finalize the tariff rates for imported pharmaceuticals, planning to announce detailed plans within two weeks. Post-negotiation, US Secretary of Commerce Howard Lutnick assured that Korea will not face worse treatment than other countries in semiconductors or pharmaceuticals. The Presidential Office confirmed that Korea would receive most-favored-nation treatment regarding tariffs on items like semiconductors and pharmaceuticals. Therefore, the tariff impact on the pharmaceutical and biotech industries may remain minimal.
Furthermore, the negotiation results might usher in new opportunities for Korean pharmaceutical companies. With the US maintaining its policy of curbing China’s industrial growth and reducing trade policy uncertainties with Korea, there’s speculation of bolstered competitiveness for products like biosimilars.
In May, the Trump administration issued an executive order aimed at reducing (or capping) the prices of expensive prescription drugs and improving drug distribution within the US. Organizations like the American and Korean Bio Associations cautiously suggest that these moves might increase the competitive edge of biosimilar products in the US market. If this proves true, it could benefit Korean pharmaceutical companies like Celltrion, Samsung Biologics, and Huons.
The Korea Pharmaceutical and Bio-Pharma Manufacturers Association also emphasized potential opportunities for Korean companies based on trust, quality, and price competitiveness, driven by the US’s stance against China. They highlighted Korea’s global-level formulation technology and robust manufacturing capabilities, making it an attractive alternative and reliable partner in strengthening the US’s drug supply chain. The association noted that biosimilars hold a significant market share and competitive standing in both the US and Europe.