Impact of New Tariff Policies on the Mexican Pharmaceutical Sector

The pharmaceutical sector is under scrutiny due to the tariff strategies implemented by Donald Trump, which challenge established norms set by the World Trade Organization (WTO). Since 1994, the Pharmaceutical Agreement—signed by the United States, Canada, the European Union, Japan, Norway, and Macao (China)—aimed to eliminate tariffs on medications and related products. However, the U.S. president announced that, starting April 2, pharmaceutical products could face a 25% tariff, alongside automobiles and chips, in an attempt to encourage companies to move their production to U.S. soil.

And what about Mexico?

WTO Shortcomings According to the WTO, member countries agreed to eliminate taxes on over 7,000 components and pharmaceutical products, ranging from antibiotics to vaccines. European countries would bear the most significant burden, but Mexico wouldn't be left out: this tariff could limit its ability to act as a strategic supplier in the U.S. market.

Trade Partners on the Edge The UN's Comtrade database indicates that U.S. imports of pharmaceutical products reached $213 billion in 2024. It's estimated that the total consumption of pharmaceuticals in the U.S. was $560 billion in the same year, which means the country imports 38% of what it consumes. In recent years, Ireland, Germany, and Switzerland have been the leading suppliers of medications to the U.S., together accounting for 39.2% of the country’s pharmaceutical imports. If Trump’s announced tariffs go into effect, these countries will be the most affected, severely impacting their pharmaceutical industries and global trade. However, the consequences will also weigh heavily on American consumers, as the tariffs would drive up the prices of prescription medications. “This is particularly critical for generic drugs with narrow margins, as under these conditions, it's unlikely they will continue to be exported,” points out the European bank ING. While the intention to bolster pharmaceutical production in the U.S. is valid, tariffs don't seem to be the right solution. According to Oxford Economics, the pharmaceutical industry requires substantial capital investment and has long planning cycles, making it difficult for European companies to shift their operations to the U.S. in the short term. Instead of facilitating production, it could lead to shortages and higher costs for medical treatments for millions of Americans. Although Mexico is not one of the top exporters of pharmaceutical products to the U.S., it plays a significant role locally; 43% of its exports in this sector go to its northern neighbor. The new tariffs jeopardize Mexico's goal of becoming a leading exporter and attracting investments in the sector. The pharmaceutical industry is crucial to the Mexican government's nearshoring strategy. However, trade uncertainty could hinder future projects, according to a report from GlobalData. The study "100 Steps Toward Transformation," presented by President Claudia Sheinbaum, includes plans to consolidate the AIFA as a specialized cargo terminal linked to a development corridor in strategic sectors like the pharmaceutical industry. Mexican entrepreneurs emphasize the need to enhance nearshoring to establish a robust binational supply chain. An analysis by the Institute of the Americas and the Burnham Center explores opportunities in the Binational Mega-Region Cali-Baja, which encompasses Southern California and Baja California. Nearshoring not only promotes production but also clinical research. Larry Rubin, president of the American Society of Mexico, mentions that with regulatory reforms in Cofepris, Mexico could attract investments of up to $4 billion, a significant increase from the current $200 million. The country faces the challenge of establishing itself in the pharmaceutical realm amidst an unstable trade environment. Marco Linscott, former Assistant U.S. Trade Representative for South Asia and Central Asia, highlights the WTO's irrelevance during what he calls a historic moment, as it has become unable to fulfill its role as an arbiter, even as Trump continues to implement new tariffs and threaten more. Some countries under Trump’s radar are seeking agreements to avoid U.S. tariffs, while others are preparing to impose retaliatory tariffs against U.S. exports. “This is a far cry from the golden age of the multilateral trading system, which was seen as a key forum for negotiating new tariff commitments, modernizing trade rules, and fulfilling commitments through its dispute resolution system,” Linscott concludes in an article for the Hinrich Foundation advocating for a more equitable and sustainable global trade.

The current economic environment indicates that instability arising from tariff policies can affect not just trade but also access to affordable medications. Companies must be cautious in planning their investments and strategies in this changing climate, and governments should consider options that promote a balance between economic development and the welfare of citizens, especially in the health sector.