Wall Street waves off Trump's 200% pharma tariff threat
"We'll be announcing something very soon on pharmaceuticals. We're going to give people about a year, a year and a half to come in ,and after that they're going to be tariffed ... at a very, very high rate, like 200%," Trump said at a Cabinet meeting Tuesday.
Mizuho Securities health sector expert Jared Holz noted the market initially reacted before right-sizing Tuesday.
"The space sold off on the headlines yesterday but finished flat/up on the whole, evidence of the buy- side shaking off noise," he wrote in a note to clients Wednesday.
The S&P's Biotech ETF (XBI) and Health Care Select Sector Fund (XLV) both remained flat in trading Tuesday afternoon through Wednesday morning, indicating the indifference Wall Street has adopted to Trump's tariff threats — with some analysts expecting the Street-coined term TACO, or Trump Always Chickens Out, to be applied in the case of pharma as well.
"200% Drug Tariffs, or 'TACO' Eventually?" Jefferies analyst Cui Cui headlined in a note Wednesday, adding, "[We] expect considerable industry resistance to drug tariffs."
Jefferies health sector analyst Akash Tewari similarly mocked the tariff in his note to clients, headlined "Tariffs schmariffs — why the Trump pharma announcement is noise."
Tewari explained that with the grace period of 1 to 1.5 years, the impact of tariffs "could be more modest" than previous estimates, allowing more time for companies to mitigate any potential impact. Companies also indicated in first quarter discussions with analysts that they expect a different approach rather than a blanket tariff.
"Several [companies] mentioning stockpiling inventory ahead of tariffs to mitigate near-term impact & ability to ramp up US capacity [plus] many hinted there could be a distinction between Section 232 tariffs for countries that pose national security concerns vs localities like Ireland," Tewari wrote.
The Trump administration launched a Section 232 investigation in April to determine which drug manufacturers are operating in countries that pose a national security threat to the US. Those drugs and drugmakers could face the steepest penalties, if they have not moved or adjusted operations accordingly.
The US already largely produces branded drugs domestically, but the lower-cost generics market is mostly based in Asia and Europe. Some pharma executives have indicated they could work with the US to adjust the threat by producing more locally.
"We don't make those medicines today, we invented them long ago, but the industry could play a role in helping national security, and that would be fine," Eli Lilly (LLY) CEO David Ricks told Yahoo Finance earlier this year.
Mizuho's Holz expects the tariff will be significantly less than Trump's comments.
"Makes nearly as much sense as every other threat this administration has uttered since taking over. Will certainly be walked down dramatically. Imagine next headline will be POTUS praising entities such as LLY and JNJ for their patriotism (moving more production domestically)," Holz wrote.
"Street has prudently ignored the 200% figure and deemed as erroneous," he added.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. That includes GLP-1s, of course. Follow Anjalee as AnjKhem on social media platforms X, LinkedIn, and Bluesky @AnjKhem.
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