The second tranche of Section 232 pharmaceutical duties reaches every remaining drugmaker this week, and the companies most exposed are the ones least able to build a factory
WASHINGTON, September 30, 2026. The broadest tariff ever applied to medicines entering the United States took effect this week, extending duties of up to 100 percent on patented drugs and active pharmaceutical ingredients from the seventeen largest manufacturers, who have been paying since July, to essentially every other company that ships a covered product into the country.
The expansion lands on an industry that spent three decades outside the tariff system entirely, and it arrives without the implementation guidance that importers ordinarily receive weeks before a measure of this scale. Trade counsel, customs brokers and pharmaceutical supply chain teams entered the week uncertain which products are covered, which companies qualify for the exemptions written into the proclamation, and how the claims process will work at the border.
CNN reported on Monday that the tariffs take effect Tuesday, September 30. The proclamation’s own 180-day trigger date falls on September 29. The distinction matters for entries filed in the intervening window and is the kind of question that guidance would normally have resolved.
The structure
The authority is Section 232 of the Trade Expansion Act of 1962, the national security statute that has become the administration’s principal tariff instrument since the Supreme Court struck down its emergency powers in February. The proclamation issued on April 2, 2026.
The rate structure is tiered and turns on both the country of origin and the conduct of the importing company.
The default rate is 100 percent, applied to patented pharmaceutical articles and active pharmaceutical ingredients listed in Annex I of the proclamation, a schedule of roughly 120 ten-digit tariff codes drawn from Chapters 29 and 30 of the Harmonized Tariff Schedule. Coverage attaches to pharmaceutical articles subject to a valid, unexpired United States patent and listed in the Food and Drug Administration’s Orange Book or Purple Book, together with APIs and certain key starting materials.
Products originating in the European Union, Japan, South Korea, Switzerland and Liechtenstein face 15 percent. Products from the United Kingdom face 10 percent. Those rates reflect the trade and security frameworks those jurisdictions negotiated.
Two conduct-based tiers sit alongside the geographic ones. A company with an onshoring plan approved by the Commerce Secretary pays 20 percent, a treatment available until April 2, 2030. A company that combines an approved onshoring plan with a most favored nation pricing agreement with the Department of Health and Human Services pays nothing, through January 20, 2029. Thirteen companies listed in Annex II secured such agreements before the proclamation issued and are exempt on that basis.
Annex IV runs the other direction, listing roughly 400 tariff codes at a zero rate and effectively carving those products out. Vitamins classified under heading 2936 and broad spectrum antibiotics were placed in Annex IV rather than Annex I, a drafting choice that spared two categories where import dependence is nearly total.
What is exempt
The exclusions are extensive on paper. Generic pharmaceuticals and biosimilars are excluded, though the proclamation directs a reassessment within one year and practitioners read the carve-out as provisional. Also excluded are orphan designated drugs, nuclear medicines, plasma derived therapies, fertility treatments, cell and gene therapies, antibody drug conjugates, medical countermeasures for chemical, biological, radiological and nuclear threats, products of United States origin, and prototype materials entered under HTSUS 9817.85.01.
The paper breadth has not translated into practical clarity. Trade counsel have flagged genuine ambiguity about whether the excluded categories apply automatically or require additional qualification tied to a country’s trade status or a showing of urgent United States health need. For a company importing a cell therapy from a facility in a country without a framework agreement, that ambiguity is the difference between a zero rate and a 100 percent rate.
Steve Usdin, Washington editor at BioCentury, captured the state of play a week before the deadline. “Nobody knows which products are going to be affected, which companies are exempt, which products are exempt, or how the process is going to work,” he said.
That is an extraordinary statement to make about a measure with this rate structure taking effect in seven days, and it describes the central operational fact of the week.
Who gets hit
The seventeen companies in Annex III, the large manufacturers who started paying at the 120-day mark on July 31, are the firms with the balance sheets to absorb a duty, the legal departments to negotiate an onshoring plan and the political access to reach an MFN pricing arrangement. Most did.
The 180-day tranche is different. A preliminary analysis by the Brookings Institution found that more than 100 drugmakers manufacture at least one product subject to the tariffs. The great majority are small and mid-sized biotechnology companies, and most do not own a factory.
Marta Wosinska, a senior fellow at Brookings, described the structural problem. Most of these companies rely on contract manufacturers rather than their own plants, and “their pockets are not as deep” when facing the cost of building or securing domestic capacity. She characterized the resulting competition for United States contract manufacturing capacity as reaching a “crazy level.”
That is the flaw critics identify at the center of the policy. The tariff is designed to induce onshoring by making imports expensive, and it offers a 20 percent rate to companies with an approved plan. But an onshoring plan requires capital, a manufacturing partner with available capacity and a multi-year horizon. A clinical-stage biotech with one approved product and an API supplier in India has none of those things. For that company the tariff is not an incentive to build. It is a cost it cannot pay and cannot escape.
Mollie Sitkowski, an international trade lawyer at Faegre Drinker, expects the consequences to reach patients. She predicted higher medicine prices, particularly for conditions treated only by smaller manufacturers, and fewer new drugs reaching the market in the coming years.
Industry reaction
The Biotechnology Innovation Organization, which represents small and mid-sized drug developers, filed a warning with the Commerce Department earlier in September.
John Crowley, BIO’s chief executive, argued the measure is self-defeating on its own terms. “Tariffs on America’s medicines will raise costs, impede domestic manufacturing, and divert scarce resources away from research and development critical to maintaining American biotech leadership,” he said, adding that “tariffs that punish U.S. innovators are counterproductive and risk slowing the investment and innovation needed to be successful.”
The mechanism he describes is straightforward. A small biotech’s capital is finite and allocated between research and everything else. A 100 percent duty on an imported API consumes capital that would otherwise fund trials. The tariff does not create domestic manufacturing capacity in that scenario. It reduces the amount of drug development the company can afford.
The larger manufacturers have been quieter, which is itself informative. The thirteen Annex II companies with MFN pricing agreements pay nothing through January 2029, and those agreements came with commitments to expand domestic production and to offer lower prices through Medicaid and TrumpRx, the administration’s direct-to-consumer drug marketplace. For those firms the tariff structure functions less as a cost than as a competitive moat.
Consolidation is the predictable consequence. Industry observers expect small and mid-sized companies facing unpayable duties to close or to sell to larger competitors who hold exemptions. That would reduce the number of firms serving conditions treated primarily by smaller manufacturers, raise prices in those categories and shrink the pipeline, since smaller companies account for a disproportionate share of early stage drug discovery.
Why pharmaceuticals were exempt for thirty years
The industry’s long exclusion from tariffs was not an oversight. It rested on the Pharmaceutical Tariff Elimination Agreement concluded during the Uruguay Round, under which the major producing economies agreed to eliminate duties on finished pharmaceuticals and a large list of inputs on a most favored nation basis. The rationale was that medicines are not ordinary commerce and that taxing them at the border taxes patients.
That consensus held through every trade dispute of the intervening decades. The administration’s position is that it produced a dangerous dependency, concentrating production of essential medicines and their inputs in a handful of foreign jurisdictions, and that the national security finding under Section 232 reflects a genuine vulnerability exposed during the pandemic.
The counterargument is not that the vulnerability is imaginary but that a tariff is a poor instrument for addressing it. Building pharmaceutical manufacturing capacity takes years, requires FDA facility approval and depends on a skilled workforce that cannot be assembled quickly. A duty imposed today raises costs today and produces capacity, if at all, at the end of a long lead time.
The president signaled his intention to target the sector as early as September 2025, and the measure was announced in April 2026.
Compliance mechanics
For importers, the operational requirements are demanding.
Goods entering a foreign trade zone must be admitted under privileged foreign status, which fixes the tariff classification and rate at the time of admission rather than at withdrawal. That closes the FTZ as a deferral strategy and requires zone operators to revisit admission procedures for covered goods.
Duty drawback is available, which matters for companies that import APIs, manufacture in the United States and export finished product. Drawback claims on duties at this rate justify dedicated attention, and the recordkeeping requirements are strict.
The proclamation includes external audit requirements and retroactive penalty provisions, meaning that a claim of exemption accepted at entry can be revisited, with consequences, if a later audit finds it unsupported. That combination raises the cost of an aggressive exemption claim considerably.
Classification is the first order of business. With roughly 120 codes in Annex I and roughly 400 in Annex IV, a covered product and an exempt product can sit adjacent in the tariff schedule. Importers should verify classification against the annexes at the ten-digit level rather than relying on product category descriptions, and should document the basis for each exemption claim at the time of entry rather than reconstructing it later.
Country of origin analysis deserves equal scrutiny. The geographic tiers create a substantial gap between a product of European Union origin at 15 percent and the same product of Indian or Chinese origin at 100 percent. Substantial transformation analysis for pharmaceuticals, where an API produced in one country is formulated in another and packaged in a third, is technical and is now worth a great deal of money.
Companies should also inventory their supplier base against the Annex II and Annex III lists. A contract manufacturer’s exemption status does not transfer to the importer of record, and the identity of the importer of record determines the applicable conduct-based rate.
Prices and patients
The consumer effect will be uneven and delayed.
Generic medicines, which account for roughly nine in ten prescriptions dispensed in the United States, are excluded for now. That limits the immediate exposure of the average patient and concentrates the effect in branded and specialty categories, where list prices are high and where the patients affected often have few alternatives.
The Budget Lab at Yale, in its April 2026 assessment of the tariff structure, identified pharmaceutical duties as one of the measures shaping the average effective United States tariff rate through the back half of the year, alongside the expiry of Section 122 duties. Its broader estimates put the household cost of the overall tariff structure at between $760 and $940 a year in 2025 dollars and the short-run consumer price effect at roughly 0.7 percent.
Those figures predate the second tranche and do not isolate the pharmaceutical component. What they establish is the scale of the surrounding structure into which these duties are being layered.
The one-year reassessment of the generic and biosimilar exclusion is the variable that would change the picture most. Generic manufacturing is concentrated in India and China, margins are thin, and a duty applied to that segment would pass through to patients quickly and broadly. Practitioners treat the exclusion as the most important thing in the proclamation and the least secure.
What happens next
Three developments will determine how this settles.
The first is guidance. Customs and Border Protection issued updated Section 232 guidance for pharmaceutical articles and ingredients in September, and further messages are expected. Until the agency resolves the ambiguity around the exclusion categories, importers face a choice between paying a rate they may not owe and claiming an exemption they may not be able to defend.
The second is the onshoring plan process. The proclamation requires the Commerce Secretary to approve plans and to publish criteria in the Federal Register, with rate increases available on notice for non-compliance and a transition period running to April 2, 2030. How accessible that process proves for mid-sized companies, and how quickly Commerce moves, will determine whether the 20 percent tier is a real option or a theoretical one.
The third is litigation. Section 232 has historically been the most durable of the tariff authorities, with courts reluctant to second-guess a national security finding. But the scale of this action, the tiering by company conduct rather than by product or country, and the linkage between tariff relief and a drug pricing agreement with HHS are all novel features that have not been tested.
The administration has meanwhile opened further Section 232 investigations covering personal protective equipment, medical consumables and medical equipment including devices, as well as robotics and industrial machinery. The pharmaceutical measure is a template for those proceedings as much as an endpoint in itself.
For importers and exporters
The near-term guidance is unglamorous. Verify classification at the ten-digit level against Annex I and Annex IV. Document exemption claims contemporaneously. Review FTZ admissions for privileged foreign status compliance. Evaluate drawback eligibility on exported finished product. Confirm the importer of record’s own exemption status rather than a supplier’s. Model country of origin scenarios where formulation and packaging occur in different jurisdictions.
Commercially, companies with supply agreements written before April 2026 should read their tariff allocation clauses now. A duty at 100 percent exceeds what most such clauses contemplated, and the question of which party bears it is likely to be contested.
For American exporters of pharmaceutical products, the second-order risk is retaliation. Several affected jurisdictions have signaled that medicines would be an obvious target if the measure expands, and the sector’s thirty-year tariff exemption was a reciprocal arrangement rather than a unilateral American concession.
The policy’s stated objective is to bring pharmaceutical manufacturing home. Whether it does so will not be apparent for years. What is apparent this week is that the companies with the least capacity to relocate production are the ones now paying the highest rate, and that the industry entered the deadline without knowing which of its products the duty applies to.
The wider Section 232 build-out
The pharmaceutical action does not stand alone. Since the Supreme Court removed emergency authority in February, Section 232 has become the load-bearing statute of American trade policy, and Commerce has opened proceedings at a pace without precedent.
Steel and aluminum duties sit at 50 percent, with the derivative product inclusion process adding hundreds of downstream categories through three annual windows. Investigations are open on personal protective equipment, medical consumables and medical equipment including devices, and on robotics and industrial machinery. Manufacturers and industry associations have raised concerns in each proceeding that duties on capital equipment raise the cost of exactly the domestic production the policy aims to encourage.
That tension is sharpest in pharmaceuticals. A company responding to the duty by building a United States facility must buy process equipment, filling lines, isolators and analytical instrumentation, much of it imported and some of it already dutiable under the steel and aluminum derivative inclusions. If the robotics and industrial machinery investigation results in action, the cost of onshoring rises further at the moment the policy is asking companies to onshore.
Section 232 also carries no expiration. Unlike Section 122, which lapses after 150 days, or Section 201 safeguards, which run four years with an extension to eight, a Section 232 action persists until the president modifies it. The steel and aluminum duties first imposed in 2018 remain in place. Companies planning around the pharmaceutical measure should assume permanence rather than a sunset.
What the exemptions reveal
Read together, the annexes describe a policy that is more targeted than the 100 percent headline suggests and more disruptive than its exemption list implies.
The zero-rate treatment of roughly 400 codes in Annex IV, including vitamins and broad spectrum antibiotics, shows that Commerce identified categories where import dependence is so complete that a duty would produce shortages rather than onshoring. The exclusion of generics and biosimilars reflects the same judgment applied to the largest volume segment of the market.
What remains covered is the patented, branded segment, which is where pricing power is greatest and where the administration’s parallel drug pricing agenda operates. The zero rate available to companies that combine an onshoring plan with an MFN pricing agreement makes the linkage explicit. The tariff is functioning as leverage in a price negotiation as much as an industrial policy instrument.
For the thirteen companies that reached agreements before April 2026, that trade was available and they took it. For a biotech with one product and no manufacturing footprint, there is nothing to negotiate with. The policy’s incidence therefore falls hardest on the part of the industry least able to respond to it, which is the criticism BIO made to Commerce and the one that is hardest to answer on the policy’s own logic.