Baker Tilly’s Insights Into the Strategic Shift: Navigating Tariffs, Supply Chains and Reshoring Realities

Authored by Darren R. Jones, Morgan DiSanto-Ranney

The life sciences industry is entering a pivotal period of transformation as the U.S. government implements new pharmaceutical tariffs aimed at strengthening domestic manufacturing. While the tariffs that took effect on April 8 did not impact pharmaceutical products, forthcoming measures are expected to target a broad range of industry components — including active pharmaceutical ingredients (APIs), branded drugs, generics, biologics and medical devices.

These policy changes are part of a broader shift in trade strategy, which includes a 10% baseline tariff on all imports, as well as reciprocal measures designed to address global trade imbalances. While the long-term goal is to bolster national self-sufficiency, the immediate effects are reverberating throughout the industry.

Immediate industry impacts

For pharmaceutical manufacturers, the introduction of tariffs brings significant operational and economic challenges.

• Increased costs: Tariffs on imported APIs, raw materials, and medical devices will drive up production costs. These increases may be passed down the value chain, potentially raising prices for patients and payers. As highlighted by the New York Times, the proposed tariffs would target high-value European exports such as Ozempic, cancer therapies and flu vaccines—medicines that currently command premium prices in the U.S. market and generate substantial profits for manufacturers.
• Reduced patient access: Cost pressures could make generics and other low-margin therapies less viable, diminishing availability in already underserved markets. These pressures can also lead to FDA-declared drug shortages, where limited supply status allows compound pharmacies to step in. This can introduce new competitive and regulatory complexities across the market.
• Retaliatory measures: Global partners may impose their own tariffs or limit cooperation in areas like clinical research, complicating clinical trials and supply agreements. Compounding these challenges is a growing threat of export restrictions on scarce raw materials critical to manufacturing, placing additional strain on already fragile global supply chains.
• Market volatility: Uncertainty surrounding the new policy has already led to fluctuations in pharmaceutical stock prices.

These immediate consequences serve as a wake-up call — not only to manufacturers, but to healthcare stakeholders who must now navigate a rapidly evolving economic and regulatory landscape.

Section 232 investigation and policy review

In parallel, the U.S. Department of Commerce has launched a Section 232 investigation, effective April 1 to evaluate the national security implications of pharmaceutical imports. This review assesses critical vulnerabilities in the supply of medicines, APIs, and medical countermeasures needed in the event of biological, chemical or radiological threats as well as pandemics like COVID-19.

With a narrow window for public comments open until May 7 (public comments opened on April 16), industry stakeholders have a time-sensitive opportunity to shape future policy. Providing input during this review can help clarify the clinical, operational, and economic implications of the current supply landscape.

Adding urgency to the conversation, Reuters recently reported that a 25% tariff on pharmaceutical imports—an idea President Trump has floated—could increase U.S. drug costs by nearly $51 billion annually, raising prices by up to 12.9% if passed on to consumers. The Biotechnology Innovation Organization (BIO) has also raised concerns about potential industry-wide disruption. In a March survey of its member companies, 94% of biotech firms anticipated increased manufacturing costs as a result of tariffs. The EU emerged as the most critical concern, with over half of respondents warning that such tariffs would significantly hinder their ability to secure funding and carry out research initiatives.

Supply chain complexities and risks

The pharmaceutical industry relies on global supply chains that have been built over decades. APIs are primarily sourced from countries such as India and China, and high-precision manufacturing equipment often comes from Europe. Disruptions to these supply chains pose several risks:

• Shortage of materials: Tariffs may make it financially unviable to produce certain generics and other drug types due to shortages of materials, many of which are already scarce and difficult to source.
• Production delays: Sudden changes in sourcing or manufacturing partners can require extensive re-approval processes by the FDA, leading to extended delays.
• Limited alternatives: Shifting production domestically is constrained by limited Good Manufacturing Practice (GMP)-compliant facility capacity and the time-intensive nature of building new infrastructure.
• Stock piling concerns: There are growing concerns that pharmaceutical companies may begin stockpiling key ingredients and finished products to mitigate supply disruptions.

Strategic options for life sciences firms

Given the uncertain environment, flexibility is key. Companies are encouraged to:

• Plan for short-term tariffs: Update financial forecasts, pricing strategies and supplier contracts to account for near-term cost increases.
• Review supply chains: Identify nearshoring or U.S.-based manufacturing alternatives, with a focus on minimizing operational disruption.
• Engage policy makers: Participate in the Section 232 comment process to highlight key industry challenges and suggest balanced solutions.
• Monitor incentive programs: Evaluate long-term incentives designed to support domestic manufacturing and innovation.

These immediate steps help companies manage the near-term while positioning for potential long-term shifts in the global manufacturing landscape. One of the most significant strategic considerations now gaining traction is the opportunity presented by federal reshoring incentives.

Incentive-driven reshoring

Federal policy efforts have increasingly focused on strengthening U.S. based manufacturing through incentive programs. Under the Inflation Reduction Act (IRA), life sciences companies can benefit from a variety of tax credits and infrastructure investments aimed at supporting domestic production.

Key elements include:

• Tax credits for facility upgrades: The IRA expanded the Section 48C Advanced Energy Project Credit, providing up to 30% in tax credits for pharmaceutical manufacturers modernizing or expanding facilities with energy-efficient or low-emissions technologies. This initiative helps offset the cost of reshoring by encouraging sustainable infrastructure improvements.
• Support for biomanufacturing and life sciences hubs: While not exclusive to pharmaceuticals, the IRA aligns with broader federal efforts to invest in regional biotech and biomanufacturing ecosystems. Funding supports R&D and advanced manufacturing capabilities—critical components for building domestic production capacity.
• Workforce development for biomanufacturing talent: Federal investments tied to the IRA also support education, training and apprenticeship programs aimed at developing a skilled biotech and pharmaceutical workforce. This ensures companies have access to qualified talent as they scale up U.S.-based operations.

This creates a compelling case for reshoring. However, the transition will take time as developing domestic capacity depends on regulatory timelines, labor availability and infrastructure readiness.

The big picture

The life sciences sector is entering a period of significant transformation. New tariffs and evolving industrial policies are reshaping the strategic landscape for pharmaceutical companies. In the near term, rising costs and supply chain disruptions are likely. Over the long term, reshoring incentives may help strengthen domestic capabilities and navigating the transition will require adaptability, collaboration and careful planning.

Whether companies choose to reshore, nearshore, or diversify supply chains, one thing is clear: proactive strategy and operational agility will be essential in maintaining both business continuity and public health readiness in this shifting environment.

Learn more about how tariffs may affect the pharmaceutical industry in this podcast featuring Darren Jones, Baker Tilly’s life sciences industry leader.

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