Escalating Trade Tensions: Potential Migration Wave of 100 Billion from EU to US due to Trump's Tariff Threats
A storm brews in Europe's pharmaceutical industry: Trump's tariff threats send shockwaves, and investors are scrambling.
Once a haven for investments, the pharmaceutical industry is now on edge due to Donald Trump's tariff threats. Major players like Roche, Bayer, and Novartis have lost billions in market value in just a few days. And this is just the tip of the iceberg: according to the EFPIA industry association, over 100 billion euros in investments could drain out of Europe.
The Tariff Threat Comes from Capitol Hill
On April 2, Trump's administration launched a new round of counter-tariffs ("Liberation Day Tariffs") – initially, the pharmaceutical industry was spared. But on Wednesday, signs pointed to tariffs on medicines. In public statements and behind closed doors, Trump has repeatedly declared that the pharmaceutical sector "will no longer be spared."
In the future, 25 percent or more could be due on medicine imports to the USA – a scenario that would plunge European and even Asian manufacturers into a crisis. Already now, 94% of companies expect production costs to rise, and half would need to find new partners, according to a BIO survey.
The European Pharma Elite Sound the Alarm
The European pharmaceutical association EFPIA appeals dramatically to EU Commission President Ursula von der Leyen: "Without a radical policy change, emigration is imminent." In the next three months, investments worth 16.5 billion euros are at risk. For the years 2025 to 2029, it could even be over 100 billion euros – that's two-thirds of the planned expenditure.
The primary sources of criticism are increasing regulatory burdens, inadequate patent protection, and lack of economic policy incentives. The USA, on the other hand, offers lower taxes, leaner procedures, and – if Trump gets his way – soon also a tariff advantage.
Stock market goes wild – Pharma stocks in free fall
Since last Wednesday, the Stoxx Europe 600 Health Care has plummeted by over 12 percent – significantly more than the overall market. Industry giants lost double digits:
- Novo Nordisk, Roche, Novartis: each around -5%
- Bayer, Merck KGaA, Medios: -3% or more
- Suppliers like Sartorius, Qiagen: also heavily under pressure
An analyst from BMO Bank puts it bluntly: "The myth of the safe pharmaceutical harbor is shattered."
And now? What investors need to know
The situation is tense – but not yet lost. For investors, two crucial courses of action now arise:
- Risk management
Revisit exposure to EU pharma: Those heavily invested in European healthcare values should reassess their positions.
Enhance diversification: US pharma (e.g., Eli Lilly, Pfizer) could thrive in the short term.
Insure against tariff and supply chain risks: Especially important for funds and ETFs with a high proportion of pharmaceutical manufacturers focused on exports.
- Is a Trump policy reversal in the cards?
Some analysts view Trump's threat as a bargaining chip – similar to his earlier tariffs against China. If he backs down, a rebound in pharmaceutical stocks could occur.
There's also hope from the United Kingdom: Prime Minister Rishi Sunak has announced plans to significantly reduce bureaucratic hurdles for clinical studies. A new Brexit dividend for pharma?
In conclusion: Europe's pharmaceutical future is at stake.
The coming weeks will be crucial. Will Europe remain a top-tier pharmaceutical hub - or will Trump draw the industry to the USA? For investors, it's a matter of staying vigilant, diversifying risks – and watching political developments closely.
Also read: MOVE OVER, VIX! or THEN THERE COULD BE A FED PIVOT OR U.S. HOUSING BUBBLE
Background Insights:
The current state of potential U.S. tariffs on European pharmaceuticals involves active trade investigations and threatened tariff increases that could significantly impact the European pharmaceutical industry. Key points to consider:
- U.S. Section 232 probe: The U.S. Commerce Department initiated an investigation into pharmaceutical imports, a move that could empower the Trump administration to impose tariffs under national security grounds.
- Threatened tariffs: The Trump administration announced plans for "major" tariffs on pharmaceuticals, potentially up to 25%, with implementation expected "very quickly" (as of April 2025).
- EU opposition: The European Commission criticized the move as disruptive to transatlantic trade, warning it breaches WTO principles and threatens supply chains.
A tariff hike could lead to supply chain disruptions for the pharmaceutical industry. The U.S. imported €203 billion in pharmaceuticals in 2023, with 73% sourced from Europe. Generic and biosimilar medicines, which operate on low profit margins, face disproportionate risks from cost pass-throughs. A 25% tariff could raise U.S. drug costs by $51 billion annually and consumer prices could increase by up to 12.9%. The European Federation of Pharmaceutical Industries warns of an 85% drop in EU capital investments and €164.8 billion in lost investments from 2025-2029 due to relocation incentives.
U.S. advantages in IP protection, regulatory speed, and innovation rewards could contribute to an "exodus" of EU pharma firms to the U.S. The recent U.S. Inflation Reduction Act (IRA) provides tax breaks and incentives for domestic pharmaceutical companies, increasing their appeal. European lobbying organizations like Medicines for Europe emphasize the WTO "most favored nation" violation and advocate for tariff exemptions for medicines. Global supply chain strain could also result from tariffs, as the U.S. heavily relies on Asian API suppliers, and Europe supplies critical generics to address U.S. shortages.
- Trump's administration's threats of tariffs on medicines have created unrest in the European pharmaceutical industry, causing major players like Roche, Bayer, and Novartis to lose billions in market value.
- The European Pharmaceutical association EFPIA has appealed to EU Commission President Ursula von der Leyen, warning of potential emigration of the industry due to the tariffs, with investments worth 16.5 billion euros at risk in the next three months.
- If tariffs are implemented, European and Asian manufacturers could face a crisis as 25 percent or more could be due on medicine imports to the USA.
- For investors, the situation requires careful risk management, including revisiting exposure to EU pharma, enhancing diversification, and insuring against tariff and supply chain risks.
- Some analysts view Trump's threat as a bargaining chip, with a potential rebound in pharmaceutical stocks if he were to back down.
- The United Kingdom's plans to significantly reduce bureaucratic hurdles for clinical studies could present a new Brexit dividend for pharma, offering potential investment opportunities outside of Europe.
