John Whelan: Another tariff escape for Ireland's pharma companies

Pharma firms will have up to a year and a half to shift production to US before facing crippling tariffs but consequences for manufacturing here could still be dire

Industry executives are taking comfort from  Donald Trump's statement that he is giving pharmaceutical companies up to a year and a half to shift their production to the US. File picture: Philip Toscano

The pharmaceutical industry appears to have once again avoided the US tariff chaos, created by US president Donald Trump’s letter addressed to European Commission president Ursula von der Leyen, posted Saturday on his social media platform, Truth Social.

His threat to raise tariffs on European products to 30% starting on August 1, is widely seen as a gambit to force the hand of the European Commission who have already responded with a written statement, saying “we remain ready to continue working towards an agreement by August 1,” adding that “at the same time, we will take all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required”.

However, industry executives are taking comfort from Trump’s meeting last Tuesday, after which he stated he is giving pharmaceutical companies up to a year and a half to shift their production to the US, stating: “We’ll be announcing something very soon on pharmaceuticals. We’re going to give people about a year, a year and a half to come in, and after that they’re going to be tariffed ... at a very, very high rate, like 200%”.

Meanwhile, industry executives are saddled with managing full warehouses of medicinal products imported from Europe in the first four months of the year, to avoid the earlier tariff threats by Trump after his election as US president at the beginning of the year.

Immediate consequences for Ireland

And whereas US manufacturers appeared to have now stopped the rapid stockpiling of drugs and medical products from Europe, as they assess the situation, there are immediate consequences for Irish-based factories.

In the four months to April, Irish medicinal and pharmaceutical manufacturers had already shipped 90% of their full-year US market demand.

The question for these manufacturers is if you shipped €58bn of product to the US market across the whole of last year, and by the end of April, you have already shipped €54bn, what do you do with the surplus capacity in your Irish factories for the rest of the year?

Storage space for drugs and other products may also be maxed out in the US, bearing in mind that most pharmaceuticals have to be stored in specialist temperature-controlled facilities, which are not cheap.

Specialist pharmaceutical warehouses in Ireland may also face a costly lack of trade if manufacturing is temporarily stopped, to enable the US marketing teams to sell off the surplus already on hand.

Of course, it’s possible that manufacturers may introduce price incentives to increase consumer interest in other markets outside of the US.

However, the prospect for the manufacturing bases in Ireland could be dire, with many executives faced with unsavoury options to implement temporary closures and staff lay-offs, while the oversupply runs down. 

And while no decisions have been made as yet, all options remain on the table, according to industry sources.

Many in the industry see the Trump grace period of one to 1.5 years, offering a much better scenario for US manufacturers with overseas plants, allowing more time for companies to mitigate any potential impact.

US companies also indicated in first-quarter discussions with analysts that they expect, in this period, a different approach rather than a blanket tariff from the Trump administration.

In particular, there could be a distinction between US Section 232 tariffs for countries that pose national security concerns versus localities like Ireland.

The Trump administration launched a Section 232 investigation in April to determine which drug manufacturers are operating in countries that pose a national security threat to the US.

Facing steep penalties

Those drugs and drugmakers could face the steepest penalties if they have not moved or adjusted operations accordingly. 

Ireland would clearly not be a security threat and may continue to be an acceptable overseas supply chain for US companies.

Ironically, there continues to be a strong US government incentive to offshore actual production. 

In fact, the incentive to offshore production increased after the last Trump Administration passed into law in 2017 the Tax Cuts and Jobs Act.

The big worry now for the industry is that the European Commission includes retaliatory tariffs on pharmaceutical imports from the US, in their counteraction on August 1, which could open up the industry to immediate 200% tariffs by the Trump administration.