Pharmaceutical products from China continue to be subject to the fentanyl-related emergency tariffs (20%) and are expected to be subject to national security tariffs to be announced under Section 232 of the Trade Expansion Act of 1962, despite the recently announced “exemption” from the so-called “reciprocal tariffs” announced on April 2, 2025. We expect the Section 232 investigation to move quickly, and we advise companies to take prompt proactive steps to assess the tariff impacts. Our trade team stands ready to assist clients in navigating the fast-developing tariff landscape.
- Current Pharmaceutical Exemption: Currently, Annex II and III of Executive Order 14257 (the April 2 executive order imposing broad-reaching reciprocal tariffs on all U.S. trading partners except Canada and Mexico) exempt a wide range of pharmaceutical products from the so-called “reciprocal tariffs” set forth in the order, as amended by Executive Order 14259 “Amendment to Reciprocal Tariffs and Updated Duties as Applied to Low-Value Imports from the People’s Republic of China” (increasing duty rates applicable to PRC and Hong Kong), and Executive Order 14266 “Modifying Reciprocal Tariff Rates to Reflect Trading Partner Retaliation and Alignment” (suspending until July 9, 2025, the application of country-specific reciprocal tariff rates and replacing such rates with a 10% universal tariff; while increasing the rate for goods from PRC and Hong Kong to 125%).
- We note, however, that pharmaceutical products remain subject to the previously imposed fentanyl-related tariffs on China as well as similar measures put in place for products of Mexico and Canada (except that goods that quality under the United States-Mexico-Canada Free Trade Agreement, or “USMCA,” can continue to receive the USMCA preferential tariff rates in lieu of the 25% duty on goods of Canada or Mexico).
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- By way of example, if a company’s pharmaceuticals are considered China-origin and are described in an HTS code included in Annex II of E.O. 14257, then such products are exempt from the 125% reciprocal tariff imposed on China-origin goods. But, such items remain subject to the 20% fentanyl-related tariff imposed on goods from China, in effect since February 4, 2025, and amended on March 4, 2025. In addition, such products may also be subject to “normal trade relation” tariffs and other trade remedy tariffs, such as duties imposed under Section 301 or antidumping or countervailing duties.
- Section 232 Investigation: On April 1, 2025, the Secretary of Commerce initiated an investigation under Section 232 of the Trade Expansion Act (19 U.S.C. 1862) to determine the effects on national security of imports of pharmaceuticals and pharmaceutical ingredients, and their derivative products. This includes both finished generic and non-generic drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients and key starting materials, and derivative products of those items. On April 16, 2025, the Department of Commerce published a notice in the Federal Register seeking public comments, to be received by May 7, 2025, or just 21 days after publication of the notice.
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- Rates and Scope of Potential Tariffs: The Section 232 investigation of imports of pharmaceuticals could lead to the imposition of sector-specific tariffs or other remedies such as tariff-rate quotas. While it is hard to predict the exact rates or scope at such an early stage, the current 25% tariff on steel, aluminum, and derivative products imposed under Section 232 may shed some light on the administration’s anticipated result. Further, President Trump indicated in February that the tariffs on pharmaceuticals could be “25% and higher.”
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- Timeline: The Section 232 statute provides that the Secretary of Commerce has a maximum of 270 days (with no minimum) to submit a report to the president after initiating an investigation, after which the President has 90 days in which to decide on the nature and duration of actions to adjust imports to mitigate the threat. (Any such actions are to be implemented in 15 days, with a related report to the Congress due in 30 days.) The statue also provides the Commerce Department with discretion to solicit public comments, to issue questionnaires to solicit relevant information, and to hold a public hearing, and in the past such discretionary steps have generally been taken. However, the new Trump administration has been expediting the investigative process—both in the current Section 232 investigation into pharmaceuticals and in the recent investigation of timber and lumber products—by, for example, reducing the comment period typically provided, declining to issue questionnaires seeking relevant information, and omitting the discretionary public hearing. Therefore, we expect the pharmaceutical Section 232 investigation to move quickly, especially given Secretary Lutnick’s remark that such tariffs will take place in the “not too distant future.”
- Important of Taking Proactive Steps: Given the fast-developing tariff landscape, with frequent modifications of existing tariffs and imposition of new tariffs, we encourage pharmaceutical companies to take proactive steps to assess the impact of the new and prospective tariffs on their production and supply chains. Our trade team has advised companies in conducting, for example, country of origin analysis for their pharmaceutical products when considering operational changes to minimize tariff impacts, which is a highly fact-specific analysis. We have also advised companies participating in Section 232 investigations by the submission of comments and suggesting other steps that might be taken to affect the outcome. Our trade team stands ready to assist clients with navigating the shifting tariff landscape.