Prescription for uncertainty – Trump’s trade policy and its impact on UK Pharma
As of April 5th, President Donald Trump announced a 10% baseline tariff on all imports. In addition to the 10% tariffs, a 25% tariff has been put on UK car exports, as well as steel and aluminium products.
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However, pharmaceuticals are currently exempt from these tariffs. This has brought a temporary sigh of relief to the sector. Medicinal and pharmaceutical goods are one of Britain's top exports to the US, with exports to the country worth £6.5 billion last year.
Despite this exemption, there is ongoing uncertainty. President Trump has indicated that pharmaceutical companies may face additional taxes if they do not ultimately invest more in the US and there is speculation that the industry may be hit by a separate announcement in a few weeks. Previously he has talked of tariffs as high as 25% on medicines. A volatile trade policy means rules could change overnight. Such whiplash policymaking makes it harder to plan long-term R&D and investment. It adds to an already complex operating environment.
If tariffs are implemented, they would affect supply chains, increasing the need to adjust manufacturing operations to this new reality. When deciding on locations, companies must factor in tariffs. However, it's important to recognise that relocating production from one country to another is a complex, time-consuming process that can span several years. By the time a new facility is up and running, there may have already been a change in U.S. administration. As a result, any major investment should be backed by sound, long-term business strategies rather than short-term political considerations. Furthermore, given the diverse range of raw materials and the global nature of pharmaceutical supply chains, consolidating operations in one country may not always be practical or feasible.
Pharma companies could go into defence mode. The CEO of Eli Lilly stated that with drug prices essentially capped in certain regions, additional costs would have to be absorbed by cutting staff and R&D. Investments in real estate could be deferred or scaled back as a result.
In response, the industry is lobbying vigorously. Separately, the UK government is understood to have reached a broad agreement on a US-UK trade deal, with innovation to the fore. It is also understood that the UK government is drawing up plans to protect key industries, including pharma. It may be that if tariffs are introduced, they UK will get off more lightly than other nations.
A potential silver lining?
Amid the doom and gloom of a trade war, UK pharma has an opportunity. America’s scientific talent is growing restless. A recent survey in Nature found that 75% of US based scientists (out of a sample of 1,200) are considering leaving the country. Funding cuts, hostility to experts, and political disruption have sparked talk of a mass “brain drain” from the US. The UK is poised to benefit if it plays its cards right. With a strong life sciences ecosystem and no language barrier, Britain could be a top destination for disillusioned American researchers.
In my view, talent is fundamental to success. Exceptional individuals drive the formation of high-potential startups, which then draw in the crucial capital needed to scale. If the UK can successfully attract more of the world's leading minds, it will offer an even more compelling proposition to investors—combining top-tier talent, innovative ventures, a stable business environment, and attractive valuations. This combination could increasingly attract US investment, addressing a longstanding challenge: historically, behavioural economics and practical constraints have meant that US investment managers tend to prioritise domestic opportunities, often overlooking UK entities that offer greater potential at more attractive valuations.