Overcoming the Volatility of Tariff Inconsistency: The Perilous Nature of Cautious Strategy in Pharmaceutical Production
Pharmaceutical manufacturers are grappling with a complex array of challenges and opportunities as they weigh the decision to reshore their operations in response to evolving U.S. trade policies.
**Key Challenges**
The reshoring of manufacturing to the U.S. presents several hurdles, including higher labor and material costs, capital investment, and a technology gap. For instance, domestic production can incur increased expenses due to tariffs on steel and other raw materials, and labor shortages can complicate scaling up operations. U.S. facilities often lag in producing active pharmaceutical ingredients (APIs) and key starting materials (KSMs) due to underinvestment in advanced manufacturing technologies (AMTs). These challenges are particularly acute for generic drugs, which face shortages.
Broad tariffs under the "America First" trade agenda have also raised input costs and created uncertainty, threatening innovation and pipeline development. Political and regulatory uncertainty, due to shifts in trade policies and administrations, further deter companies from committing to reshoring investments.
**Opportunities**
Despite these challenges, there are compelling reasons for pharmaceutical manufacturers to consider reshoring. The U.S. government is offering incentives, such as tax breaks and multi-year funding, to encourage reshoring pharmaceutical manufacturing. These measures aim to support building domestic capacity, especially for prioritized APIs and KSMs, enhancing national security and medicine supply chain resilience.
Emerging technologies like continuous manufacturing, flow chemistry, and digital transformation offer pathways to modernize and localize production, improving efficiency and reducing costs in the long term. The adoption of these technologies can lead to lower total cost of ownership, achieved through access to higher quality supplies, reduced product lead times, elimination of language barriers, and simplified sourcing, testing, and release processes.
Large pharmaceutical companies are investing billions to expand U.S. manufacturing capabilities, and new entrants are emerging in the market, signaling a broader momentum toward domestic production. Reshoring also aligns with efforts to reduce dependence on foreign suppliers, especially for critical drug components, which is increasingly seen as a strategic imperative amid geopolitical tensions and recent supply chain vulnerabilities.
**In Summary**
Pharmaceutical reshoring in the U.S. presents national security and supply chain resilience benefits, but it requires overcoming cost, labor, technology, and regulatory hurdles. The success of reshoring initiatives will depend on robust government support, adoption of advanced manufacturing technologies, and industry-wide digital transformation to enhance competitiveness and ensure affordable, timely access to medicines.
Countries like China are developing drugs that biotech firms find compelling, and Western companies are making significant investments to acquire the rights to technologies originally developed in China. AI tools such as digital twins can be deployed in reshored operations, using real-time data from sensors to analyze inputs and predict outcomes, suggesting process changes that improve results.
The Trump administration has implemented economic policies affecting global trade relationships, causing uncertainty for pharmaceutical manufacturers. Capital is tight, but pharmaceutical manufacturers have options, including reshoring and operational improvements that increase competitiveness. Tariffs, tariff pauses, court orders, injunctions, reversals, and ongoing litigation have added to the confusion.
Safeguarding sensitive technologies is a national security issue for pharmaceutical manufacturers. Pharmaceutical manufacturers who find they have a diminished competitive advantage and reduced customer demand are considering options to capture additional market share and protect margins in profitable sectors. Local conditions, such as humidity levels, must be considered when evaluating the relocation of operations to avoid wasting time and money.
Reshoring or nearshoring may not have a one-size-fits-all solution, as demand profiles, competitiveness, and tariff impacts vary for each operation. Reshoring can help address supply chain issues, making it easier to address issues like ingredient quality, warehousing and transportation standards, and packaging specifications.
- The reshoring of pharmaceutical manufacturing could potentially benefit from the growing trend of deploying advanced manufacturing technologies, such as continuous manufacturing, flow chemistry, and digital transformation, in local operations, as they offer pathways to improve efficiency and reduce costs in the long term.
- In the context of global trade, the unpredictable trade policies and administrations implemented by the Trump administration have created uncertainty for pharmaceutical manufacturers, causing them to explore options for capturing additional market share and protecting margins in profitable sectors, perhaps including the sports industry, as these policies may affect global supply chain dynamics.
