On April 2, President Trump issued Proclamation 11020 announcing the results of an investigation carried out by the Department of Commerce under Section 232 of the Trade Expansion Act of 1962 (“Section 232”) on imports of pharmaceuticals, pharmaceutical ingredients, and related products. The investigation determined that imports of patented pharmaceuticals and related inputs are being imported into the United States under circumstances that threaten to impair U.S. national security. As a consequence, the Proclamation imposes a baseline tariff of 100 percent on certain patented pharmaceuticals and associated pharmaceutical ingredients, while also establishing a tiered framework of reduced tariff rates and tariff exemptions for certain imports.
The tariffs are scheduled to take effect on a staggered basis. Initially, tariffs will take effect on July 31, 2026, for certain large pharmaceutical companies identified in Annex III of the Proclamation. For all other companies, the tariffs become effective on September 29, 2026.
When the Section 232 investigation on pharmaceuticals was first announced in April 2025, the scope of the investigation broadly covered all pharmaceutical imports and pharmaceutical ingredients, including finished drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients (“API”) and key starting materials, and derivative products of those items. Under Proclamation 11020, however, the scope of products subject to tariffs is significantly narrower, and is limited to the product categories listed in Annex I. Specifically, Annex I sets out a subset of the pharmaceutical products classified in Chapters 29 and 30 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Moreover, the tariffs apply only to articles in that subset that are also products, or ingredients of products, subject to a valid patent and listed in publications maintained by the Food and Drug Administration (“FDA”) as approved for marketing in the United States.
For products identified in Annex I, a 100 percent baseline tariff applies unless a product is eligible for a tariff reduction or exemption under the terms of the Proclamation. There are several tariff reductions or exemptions available, as described below.
Temporary Tariff Reductions / Exemptions Tied to Onshoring & Pricing Agreements
The Proclamation sets out certain company-specific tariff reductions and exemptions that are time-limited. In particular, a reduced tariff rate of 20 percent until April 2, 2030, applies to products of companies with approved onshoring plans. The Proclamation directs the Secretary of Commerce, in consultation with the Secretary of Health and Human Services, to publish criteria for these onshoring plans and indicates that approved onshoring plans will be subject to monitoring, periodic reporting, and potential external audits. Where a determination is made that a company has engaged in fraud or deliberately misled the U.S. government regarding onshoring plans, tariffs may be imposed retroactively.
Separately, a 0 percent tariff rate will apply to products of companies with both onshoring plans and most favored nation (“MFN”) pricing agreements, as set out in Annex II. This 0 percent rate is available only until January 20, 2029.
Country-Specific Tariff Reductions
Additional country-specific tariff reductions reflect U.S. commitments made in recent trade deals. For instance, a reduced tariff of 15 percent will be available for products originating from Japan, the EU, Korea, Switzerland, and Liechtenstein. This rate is inclusive of (not applied in addition to) standard tariff rates otherwise applicable under Column 1 of the HTSUS.
In addition, UK-origin products will be subject to a 10 percent tariff rate, which applies on top of standard rates set out in Column 1 under the HTSUS. Importantly, tariffs on UK-origin products are to be reduced to zero to the extent required under a finalized U.S.–UK pricing agreement, which was also published on April 2.
Accurate country-of-origin determinations will be critical for companies seeking to take advantage of these country-specific tariff rate reductions. U.S. rules of origin for pharmaceuticals differ from those used in other jurisdictions, and may often turn on the place of API manufacturing, rather than where subsequent processing takes place.
Product-Specific Tariff Exemptions
Finally, the Proclamation also sets out several product-specific exemptions, including for the following categories:
- Specialty Products: Certain specialty products—including orphan drugs, nuclear medicines, plasma-derived therapies, fertility treatments, cell and gene therapies, antibody drug conjugates, and countermeasures related to chemical, biological, radiological, and nuclear threats—will be subject to a 0 percent tariff under the Proclamation. Other specialty products and animal health pharmaceuticals may also be added to this list by the Secretary of Commerce. At least some specialty products will be eligible for this 0 percent tariff only if they are certified by the Secretary of Commerce as being either (1) a product of a jurisdiction that has a current or forthcoming trade and security framework agreement as referenced in Executive Order 14346, or (2) a product meeting an urgent U.S. health need. It is not clear whether Commerce will issue guidelines clarifying what criteria it will use to identify urgent U.S. health needs.
- Other Product Exemptions: Imports of U.S.-origin pharmaceutical products are excluded from the tariffs. In addition, generic pharmaceuticals, biosimilars, and their ingredients are subject to 0 percent tariffs, though whether to impose higher tariffs on generic products may be revisited within one year.
- Annex IV Products: The Proclamation sets out a list of 526 HTSUS classifications in Annex IV that are exempt from the Section 232 tariffs imposed under the Proclamation. While no products listed in Annex IV appear in Annex I (and thus would not be subject to these tariffs on that separate basis), the Proclamation clarifies that all Annex IV products are subject to a 0 percent Section 232 tariff. Annex IV also clarifies that products listed in either Annex I or Annex IV of the Proclamation remain exempt from tariffs imposed under Section 122 of the Trade Act of 1974.
Duty Free Entry and Dutiable Value Reductions Under HTSUS Chapter 98
Options for duty free entry or dutiable value reductions remain available under HTSUS Chapter 98. These options may be particularly relevant for pharmaceutical imports used in clinical trials or supplied to U.S. military agencies, among others.
Drawback and Foreign Trade Zones (“FTZs”)
The Proclamation permits use of duty drawback. Consistent with other efforts by the Trump administration to narrow tariff inversion benefits under FTZs, covered products must be entered into FTZs under privileged foreign status.
While the Proclamation provides new clarity about the Section 232 tariffs that will apply to patented pharmaceutical products and their associated ingredients, uncertainties remain. For instance, while the Proclamation identifies products covered by the tariffs by HTSUS classification, many exemptions established under the tiered tariff framework cannot be administered solely based on such classifications. This includes, for example, the exemption for generics; because HTSUS classifications do not account for a product’s patent status, innovative medicines generally fall within the same HTSUS classification as their therapeutically equivalent generic counterparts. It thus remains unclear how U.S. Customs and Border Protection (“CBP”) will implement the tariffs and exemptions in certain respects. For instance, it remains unclear whether all or only some specialty products may be subject to eligibility determinations by the Secretary of Commerce before 0 percent tariffs apply.
It is likely that CBP will issue implementation guidance that addresses at least some of these uncertainties prior to the July 31 first effective date of the new tariffs, though the precise timing of when any such guidance may be forthcoming or what issues it may address remains unclear.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Trade Policy practice.
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