The recent tariff actions taken by the Trump administration have stirred up discussions about reshoring manufacturing back to the United States. The administration initially imposed 25% levies on Canada and Mexico, only to reverse course shortly after. In addition, existing Chinese tariffs were raised to 20% across the board. These tariffs are seen as a way to pressure companies to bring their manufacturing operations back to U.S. soil.
Some companies, like Pfizer and Eli Lilly, have already shown interest in moving towards domestic manufacturing. However, generic drug makers, who are hit hardest by Chinese tariffs, face challenges due to slim profit margins and high costs. Michael Abrams, managing partner of Numerof & Associates, pointed out that these companies may not have the capital to build manufacturing facilities in the U.S.
While the idea of reshoring drug manufacturing is generally supported, the practicalities pose challenges. The pandemic highlighted the risks of relying on foreign sources, especially China. Civica Rx and the Biden Administration have taken steps to boost U.S. manufacturing capacity, but progress has been slow. Existing idle manufacturing sites could be utilized, but labor costs and regulations remain barriers.
Companies considering reshoring must carefully weigh the costs and benefits. Investments in U.S. manufacturing sites require significant capital, and companies should consider other priorities like stock buybacks and technological investments. Tariffs could also impact borrowing costs and inflation, further complicating the decision-making process.
Some experts are skeptical about the effectiveness of tariffs in encouraging reshoring. Previous steel tariffs did not lead to significant increases in manufacturing jobs. Companies may simply endure the pain of tariffs in the short term, as priorities may shift in the future.
In conclusion, while the push to reshore manufacturing is well-intentioned, the practical challenges and uncertainties surrounding tariffs make the decision complex for companies in the pharmaceutical industry. It remains to be seen how the landscape will evolve in the coming years.
