Chinese companies are expected to be largely unaffected by US President Donald Trump’s recent announcement of a 100 percent tariff on patented drugs, effective from October 1, 2023. Analysts indicate that China’s pharmaceutical industry is increasingly focused on biotechnology partnerships and domestic retail sales, which are insulated from these tariffs.
The new duties apply to drugs shipped into the United States, but companies that establish manufacturing facilities on American soil will be exempt. This move is part of Trump’s broader initiative to bring jobs and investments back to the US, which has seen ongoing tensions between the two nations since the start of the current tariff war in April 2023.
According to analysts at Jefferies, the latest tariffs are “not a big concern” for Chinese drug makers. They point out that many Chinese companies have minimal exposure to direct sales in the US market and instead rely on licensing deals with international partners. “Most Chinese biotechs have US partners and are immune to the tariffs, so [the tariffs] barely dent China’s healthcare powerhouses,” Jefferies noted in a client briefing.
Most Chinese biotechnology firms are still one to two years away from commercializing their products in the US, meaning their revenue largely comes from royalties rather than exports that could be affected by tariffs. Alan Zhang, a portfolio manager at Ox Capital, emphasized that tariffs may impact traditional pharmaceutical companies but are unlikely to disrupt the overall growth of China’s biotech sector. He added, “The tariffs will impact some of the traditional pharma but should be limited. However, it is likely to be inflationary to the US.”
Despite these tariffs, China remains a vital source of active pharmaceutical ingredients and some generic medicines for the US market. The nation has transitioned from being primarily known for imitating Western drugs to becoming a significant hub for biotechnology innovation, supported by government initiatives that prioritize the sector. This shift has attracted substantial foreign investment, with Western venture firms increasingly betting on Chinese biotech start-ups. Additionally, global pharmaceutical giants such as AstraZeneca, GlaxoSmithKline, and Johnson & Johnson are actively engaging in licensing agreements and acquiring drugs developed in China.
The announcement of these tariffs coincides with broader geopolitical tensions affecting China’s healthcare sector. Earlier in September 2023, reports emerged that the Trump administration is considering restrictions on licensing deals with Chinese firms. This follows ongoing efforts in Congress to limit US business relationships with Chinese biotech companies, such as the proposed Biosecure Act, which sought to prohibit major contract service providers like WuXi AppTec from obtaining federal contracts. Although the bill did not pass, it highlighted Washington’s commitment to curbing China’s advancements in the life sciences.
Paul Zhang, a partner at Bluestar BioAdvisors, explained the strategic shift in China’s drug development approach. He stated, “Initially, it was how to do shoes and sneakers faster and cheaper and better. Then it was how to build iPhones faster and better. Now it’s how to build biotech and AI faster and better.” This evolution underscores a fundamental difference in global drug strategies; while Japanese and Australian firms depend on the US for a significant share of their revenue, Chinese companies have effectively focused on their expansive domestic market and international partnerships.
The impact of the tariffs may ultimately be muted, given exemptions for local production and pre-existing stockpiles built in anticipation of trade disruptions. Neil Shearing, chief economist at Capital Economics, noted, “Many of the world’s largest pharmaceutical companies either already have some production in the US or have announced plans to build production in the near future.” He added that pharmaceuticals are an area where significant inventory stockpiling has occurred this year, as importers prepared for potential tariff impacts.
As the global pharmaceutical landscape continues to evolve, the resilience of China’s pharmaceutical companies in the face of US tariffs underscores their strategic positioning and adaptability in an increasingly complex international market.
