[By Guancha Observer Network, Chen Sijia] In April this year, U.S. President Trump threatened to impose tariffs on medicines to urge pharmaceutical companies to open factories in the United States. Trump believed that the United States does not produce medicines and other health-improving products, which makes the prices of medicines paid by the United States many times higher than those in other countries with pharmaceutical production.

However, CNN reported on June 3rd that China dominates the global pharmaceutical supply chain and the United States highly depends on Chinese-produced pharmaceutical raw materials. Experts pointed out that since China almost controls the "artery" of the U.S. drug supply, Trump's tariff threat cannot achieve the goal of onshore pharmaceutical production but may instead lead some pharmaceutical companies to abandon the U.S. market.

The article stated that amoxicillin is the most commonly used antibiotic in the United States, with tens of millions of people using it each year to treat bacterial infections such as pneumonia, stomach ulcers, and streptococcal pharyngitis. However, many Americans do not know that the only manufacturer of amoxicillin in the United States gets 80% of its raw materials from China.

Due to large pharmaceutical companies rarely disclosing relevant information, it is impossible for outsiders to know the exact degree of U.S. dependence on China's pharmaceutical industry. However, insiders and experts generally admit that the United States is highly dependent on China's pharmaceutical industry. According to trade data released by the U.S. Census Bureau, last year 96% of the hydrocortisone, 90% of ibuprofen, and 73% of acetaminophen imported by the United States came from China.

Hydrocortisone is an active ingredient in antipruritic ointment, ibuprofen is a common pain reliever, and acetaminophen, also known as paracetamol, is a common antipyretic analgesic.

CNN pointed out that China produces a large amount of key starting materials (KSM), which are essential compounds for producing active pharmaceutical ingredients (API). China and India dominate global API production, accounting for 82% of all API manufacturers registered with the U.S. Food and Drug Administration (FDA).

Although India holds a larger share, API production has gradually shifted from India to China over the past twenty years. According to data from the U.S. Pharmacopeial Convention (USP), India's submitted registration applications dropped to 50% in 2023, while China's share increased to 32%.

In the past twenty years, Chinese enterprises have been expanding their share in API production CNN report screenshot

Even the world's largest generic drug supplier, India, relies on APIs and other critical components produced in China. A report commissioned by the Indian government in 2023 stated that 70% of India's API imports come from China. Indian public health expert Dinesh Thakur said that China's emerging pharmaceutical industry has made progress in low-cost API production, and China's mature chemical industry has helped pharmaceutical companies gain advantages in chemical production.

Associate Professor Zhang Qingpeng of the Li Ka Shing Faculty of Medicine at the University of Hong Kong told CNN that since the beginning of the century, China's incentive and subsidy policies have greatly promoted the development of the pharmaceutical industry, leading to a proliferation of industrial clusters, "These clusters help reduce overall costs while maintaining quality, ultimately making China an ideal location for API and generic drug production in a free trade environment."

Although the U.S. government and Congress have long been aware of the "fragility" of the U.S. pharmaceutical industry, the development of U.S. manufacturing supply chains has been very slow. A study released by the Drug and Chemical Trade Association (DCAT) in 2021 found that 72% of basic drugs in the United States come from imports.

Trump threatened to impose tariffs on drugs in April to urge pharmaceutical companies to open factories in the United States. CNN pointed out that Trump was not the first U.S. president to attempt to promote domestic pharmaceutical production, but he was the first to try to achieve this goal through tariff threats.

Photo illustration: Last March, the production workshop of Hainan General Three Yang Pharmaceutical Co., Ltd. Visual China

Some companies specializing in patented drug production have begun to move part of their drug production from Europe to the United States. For example, last year, British company AstraZeneca announced a $3.5 billion investment plan to manufacture drugs and conduct research and development in the United States. Johnson & Johnson and Eli Lilly, major American pharmaceutical giants, also committed to expanding their business scale in the United States.

However, the situation facing generic drug companies is quite different. Industry insiders and experts pointed out that tariffs could cause generic drug manufacturers to abandon the U.S. market, exacerbating the shortage of drugs in the United States and driving up medical expenses for patients. Even if pharmaceutical companies are willing to build factories in the United States, the process would take several years.

Generic drugs aim to provide the same therapeutic effects as patented drugs after their patents expire, accounting for 90% of all U.S. prescriptions. Compared with patented drugs, generic drugs have lower prices and profit margins. Experts estimate that the profit margin of generic drugs is usually only half that of patented drugs.

Ronald Piervincenzi, CEO of USP, warned that Trump cannot achieve his goal of onshore drug production through tariffs, and even "moderate tariffs" could disrupt the supply of generic drugs in the United States, "This industry has less profit; any tariff will only put pharmaceutical companies in trouble."

He believes that for building a "resilient pharmaceutical supply chain," the U.S. government needs to adopt incentives beyond tariffs, "Every drug is closely related to people's lives. A drug shortage, a child unable to receive cancer treatment, can become a disaster. If your favorite ketchup brand is out of stock, you might get angry, but your life won't be at risk."

Stephen Farrelly, head of pharmaceuticals and healthcare at ING, pointed out that by 2023, the United States accounted for 44% of global pharmaceutical sales, so patent drug manufacturers cannot abandon operations in the country. However, generic drug manufacturers with lower profit margins are different, "They cannot make long-term investment decisions under such uncertainty. Even if they could repatriate, it would take more than five years."

Experts stated that because generic drugs are 85% cheaper than patented drugs, low-income and uninsured American patients heavily rely on generic drugs, but the cost of tariffs will ultimately be passed on to consumers. ING estimates that a 25% tariff on a common cancer-fighting generic drug could increase the price of a 24-week prescription by nearly $10,000.

A study commissioned by the American Pharmaceutical Research and Manufacturers Association in April also showed that a 25% tariff would increase the cost of U.S. drug imports annually by $50.8 billion, and if this cost were passed on to consumers, it would result in a 12.9% increase in U.S. drug prices.

Rick Jackson, founder and CEO of Jackson Healthcare, which controls the only U.S. amoxicillin manufacturer, told CNN that any disruption along the long amoxicillin supply chain could be catastrophic, indicating that China's dominant position in the pharmaceutical supply chain shows that China has the ability to shake the global pharmaceutical industry.

Trump has not yet imposed tariffs on drugs, but he signed an executive order last month to significantly reduce prescription drug prices. BBC pointed out that although Trump claimed the executive order would reduce U.S. drug prices by "30% to 80%", experts and industry insiders are skeptical of its effectiveness, and investors generally believe that the order will not produce immediate results.

This article is an exclusive contribution by the Guancha Observer Network and unauthorized reproduction is prohibited.

Original source: https://www.toutiao.com/article/7512108762589577763/

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