President Donald Trump’s 100% tariff on certain patented pharmaceutical products took effect for covered drugmakers on Sept. 29, raising questions about the potential impacts on drug prices, domestic manufacturing and smaller pharmaceutical companies.

The tariff was imposed under Section 232 and applies to patented pharmaceutical products and associated ingredients unless they qualify for specific exemptions or alternative tariff arrangements. The White House said that the measure is intended to strengthen U.S. pharmaceutical supply chains and encourage companies to expand domestic production.

However, the actual impacts are likely to vary considerably for drugmakers because the policy includes several exemptions. Companies that combine qualifying onshoring commitments with Most Favored Nation (“MFN”) pricing agreements can receive a zero tariff through Jan. 20, 2029.

Specialty Medicines Receive Protection

The new rules provide zero-tariff treatment for certain specialty medicines, subject to eligibility requirements. These include orphan drugs, nuclear medicines, plasma-derived therapies, fertility treatments, cell and gene therapies, antibody-drug conjugates, and medical countermeasures. Animal-health pharmaceuticals are also covered under the specialty-product provisions.

Trade arrangements reduce the tariff burden for several major pharmaceutical-producing markets. The proclamation sets a 15% rate for covered products from the European Union, Japan, South Korea, Switzerland and Liechtenstein, while companies that commit to expanding their U.S. production will be subject to a 20% tariff, per CNN Business.

This means that the headline 100% tariff will not apply uniformly across the pharmaceutical industry.

Generic Drugs Are Excluded From This Tariff Structure

One of the most important distinctions is between patented and generic medicines.

The administration has specifically decided not to impose Section 232 tariffs on generic pharmaceuticals, biosimilars and their associated ingredients at this time. The policy will be reviewed as the government continues monitoring pharmaceutical imports.

Consequently, the immediate tariff exposure is concentrated in patented and innovative medicines rather than the broader pharmaceutical market.

Small to Mid-Sized Drugmakers Face Different Challenges

The policy could, nevertheless, put greater pressure on smaller and mid-sized drugmakers that depend on overseas manufacturing or contract manufacturers.

A major concern is that companies with fewer financial resources may find it more difficult to quickly establish U.S. manufacturing capacity. Higher production costs, especially for those that depend more heavily on external suppliers, could affect margins, pricing decisions, and investment in research and development.

Building a manufacturing facility is also a long-term process that requires substantial capital investment, regulatory approvals and specialized infrastructure. As a result, smaller companies may have difficulty responding quickly if their products fall outside the available exemptions.

Pharma ETFs in Focus

The next phase of the tariff story will depend heavily on how drugmakers respond. Companies could increase U.S. production, renegotiate supply chains or seek tariff relief under the available exemptions and agreements.

For pharmaceutical ETFs, investors may therefore want to monitor domestic manufacturing commitments, exposure to imported patented drugs and ingredients, product exemptions, and company-specific MFN agreements.

The policy creates a potentially important divide within the pharmaceutical sector: companies with established U.S. manufacturing or qualifying agreements may face a different cost structure from smaller drugmakers that rely more heavily on overseas or contract production.

SPDR S&P Pharmaceuticals ETF (XPH Quick QuoteXPH - Free Report) provides diversified exposure to pharmaceutical manufacturers. Thus, it gets affected by drug pricing, tariffs, manufacturing reshoring, FDA developments and pharmaceutical demand. XPH tracks the S&P Pharmaceuticals Select Industry Index.

The fund charges 35 bps in fees. It has assets under management worth $488 million. The fund trades at one-month average volume of about 194,000 shares a day.

iShares U.S. Pharmaceuticals ETF (IHE Quick QuoteIHE - Free Report) focuses on companies that develop, manufacture and market prescription drugs, vaccines and related pharmaceutical products. It tracks the Dow Jones U.S. Select Pharmaceuticals Index.

The fund charges 37 bps in fees. It has assets under management worth $1.61 billion. The fund trades at a one-month average volume of about 182,000 shares a day.

VanEck Pharmaceutical ETF (PPH Quick QuotePPH - Free Report) provides exposure to large, established pharmaceutical companies. It tracks the MVIS US Listed Pharmaceutical 25 Index.

The fund charges 36 bps in fees. It has assets under management worth $1.03 billion. The fund trades at a one-month average volume of about 281,000 shares a day.