This is an audio transcript of the Swamp Notes podcast episode: ‘Big Pharma’s big tariffs’
Marc Filippino
Today on the show, we’re talking about tariffs.
Donald Trump voice clip
Like 200 per cent . . .
Marc Filippino
Like really big tariffs.
Donald Trump voice clip
If they have to bring the pharmaceuticals into the country, the drugs and other things into the country, they’re gonna be tariffed at a very, very high rate.
Marc Filippino
US President Donald Trump is taking a big swing at drugs made overseas. That much is obvious. But why he’s doing that and the impact that it’ll have, that’s a lot harder to figure out.
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This is Swamp Notes, the weekly podcast from the Financial Times, where we talk about all the things happening in US politics, finance and the economy. I’m Marc Filippino, and this week we’re asking: will Big Pharma change under Donald Trump? Here with me to discuss is Hannah Kuchler, the FT’s global pharmaceutical editor. Hey, Hannah.
Hannah Kuchler
Hey, thanks for having me.
Marc Filippino
Good to have you back. And we’ve also got Patrick Temple-West, he’s the FT’s US pharmaceutical correspondent. Hey, Patrick.
Patrick Temple-West
Hey, Marc. Hey, Hannah.
Marc Filippino
So the big news in the pharma world this week was this 200 per cent tariff the president suggested he might implement soon. Hannah, describe the scene for me, did he give a lot of details, what was it like?
Hannah Kuchler
Oh yes, famously a detailed man.
Marc Filippino
Yeah.
(Laughter)
Hannah Kuchler
No, not really. I mean, so he was at a cabinet meeting, and it’s funny because, you know, pharma has so far been excluded from the big tariffs that have been announced, but he’s always hinting that they’re coming. And there’d been maybe, I don’t know, Patrick will have to correct me here, but two, three, maybe even four weeks where he hadn’t said something about pharma tariffs. And then suddenly he comes out, and he says . . . You know, not only that they are still on his agenda, but that they might be as high as 200 per cent. But he did put a caveat in there that they would have a year or a year and a half to bring back manufacturing to the US, and that might help them escape tariffs.
Marc Filippino
And what happened when he made the announcement guys? Did shareholders go running for the hills.
Patrick Temple-West
No, quite the contrary. It was a momentary dip, as there usually is whenever tariffs come out of his mouth, but share prices rebounded, and the pharmaceutical companies, they actually ended up a little bit for the day. So, investors totally shrugged this off.
Marc Filippino
Why was that? I’m so curious because, as you said, it’s kind of counterintuitive.
Hannah Kuchler
Well, I hate to keep using this term, but I think it was the Taco traders.
Marc Filippino
Taco, of course. Trump always chickens out. Coined by our colleague, Rob Armstrong. Yeah, so you think it was a Taco thing, Hannah.
Hannah Kuchler
Yeah. Yeah. And actually analysts and investors said that. They just, I mean, this is really complex stuff. If you were gonna try and price in what the impact would be. I mean for a start, like it would be gigantic because 200 per cent is huge, but also this thing, you know, it depends what part of the value chain it’s on and all this kind of incredibly detailed stuff. And I think instead of doing that, investors have almost just got fed up and just said, yeah, well, you know, ring me when it actually happens.
Marc Filippino
All right. I think we’re gonna start implementing a dollar-on-the-jar rule every time the word Taco gets mentioned on this show.
(Laughter)
Patrick Temple-West
And pay Rob.
Marc Filippino
That’s right. Take him out for lunch. Let’s take a step back for a minute because I think the context here is important. I wonder if you guys could walk us through a bit of Donald Trump’s history with pharma. Because while this is an explosive announcement, he does have a little bit of a history here. How have they gotten along in the past, like in his first term?
Hannah Kuchler
Well, I actually had Patrick’s job in his first term, so I had a bit of a front seat to watch.
Marc Filippino
That’s right. We spoke a lot during Covid. Oh, yeah, we did.
Hannah Kuchler
Well, actually, you could almost divide it in two, right? Pre-Covid, he didn’t have a great relationship with them. Actually, you know, both sides of the aisle quite like to bash pharma and say that drug prices are too high in the US. And he did try and lower prescription drugs. He also tried to, right near the end of his tenure, to implement something. It’s called Most-Favored Nation, as a way of pegging drug prices to other countries, all of which have much lower drug prices than the US. But on the other hand, you know, he at that point wasn’t in bed with loads of vaccine sceptics. He actually, you know, put a lot of money and a lot of effort behind Operation Warp Speed that helped make the Covid-19 vaccine. And that, of course, benefited some pharma companies like Pfizer.
Marc Filippino
So the whole point of these tariffs is to bring down the price of everything, right? Bring back manufacturing to US shores, and that way the products are cheaper for Americans. Would manufacturing drugs in America actually bring their prices down? I mean, it seems like any change in price would actually go in the opposite direction, at least at first.
Hannah Kuchler
I mean, I think one of the big stumbling blocks is the reason why drug prices are really high is because of the intellectual property and the, you know, the fact that companies get this kind of government granted monopoly to charge what they like, right? It’s nothing to do with the production process. It’s not like bringing back manufacturing would really affect prices. It might have the other effect of actually making the US more secure on a national security basis. This was something that came up a lot during Covid. We should have our own supplies of essential medicines. And that’s a totally legitimate reason to do it, but it’s not gonna bring pricing down.
Marc Filippino
What will it do then?
Hannah Kuchler
Well . . . (Marc laughs)
Marc Filippino
Take a deep breath.
Hannah Kuchler
So to understand what you will do, you have to understand it’s kind of an industry of two halves, right? So the branded drugmakers, you know, they have a very expensive, you now, new fancy cancer drugs or whatever. They can swallow some kind of tariff because they have a lot of pricing power. But the generics industry, which actually makes up 90 per cent of all medicines that Americans consume. Those are your antibiotics. They’re actually some of the older cancer drugs. There’s all sorts of things in there. They have really thin margins. They already experienced tonnes of shortages, especially in the US. These are often being imported from places like India. They are not going to be able to swallow 200 per cent or even maybe 25 per cent tariffs. So you’re gonna see more and more shortages of those medicines. And I don’t think that those are headlines that Trump really wants to see.
Marc Filippino
Patrick, what do people in the pharmaceutical industry think of Trump? Obviously they have a complicated relationship, given all that we’ve talked about, but is he any different compared to any other kinds of political pressure that they’ve weathered in the past?
Patrick Temple-West
That’s a good question. I don’t think the pharmaceutical sector is too different from other sectors that are being tariffed. I mean, there was a discussion among Washington lobbyists after Trump made this initial announcement back in May that he would get distracted. You had the LA riots. You had the US involvement in Iran that people were kind of hoping that this issue would just kind of go away on its own and that he would move on to other things. And then we had this announcement this week, you know, it’s back on the front burner.
I mean, you do hear people in Washington expressing frustration, saying, you know, what is the dollar amount that company X, Y, and Z needs to announce of building manufacturing in the US that will get the White House applause? There is also a conversation about what drugs pharmaceutical companies might be able to offer — the low-hanging fruit — what can they lower the price on, of things that are going off patent already, where the price is already coming down on some of these older drugs that the companies have already made a lot of money off of and are about to hit the generics market. So, pharmaceutical companies don’t actually have to do anything yet. But they are kind of in negotiations to maybe avoid tariffs coming down the road.
Marc Filippino
Yeah. Yeah. Patrick, I’m really glad that you brought up the patents expiring, you know, these patent cliffs. The two of you wrote a story about that subject for the FT. Basically, a lot of the industry in the next few years are going to face patent expirations and they’re gonna have to really invest heavily in new drug research to make up the profits. That’s gonna be difficult because Trump has been cutting federal funding for scientific research for months now. And I wonder, those things combined, is this gonna impact these companies in the industry as a whole that’s already bracing for less revenue?
Hannah Kuchler
I think that the early stage cuts, right, so if you’re funding, the government’s funding stuff through NIH or direct grants to universities or things, that’s really early stage basic research and it is essential to the sector.
Marc Filippino
The NIH, the National Institute of Health.
Hannah Kuchler
Yeah, you know, that’s really essential, like the pharma companies don’t go out and discover more about like how our body works. They rely on the fact that academics have worked out something more about how our bodies work, and then they go and find a drug to apply to it. That’s the most basic way of looking at it. But the thing is that this is a process that takes like 20 years. So the cuts now, we won’t feel or notice 20 years and how will we be able to pinpoint? That, oh, the reason why we’ve got fewer drugs that are revolutionary in 20 years’ time is because we didn’t invest in science now. It’s really, really hard to draw that line.
Marc Filippino
Do you think, either of you, that the pharma industry will really change under Trump like to a point where we won’t recognise it five years from now or so?
Hannah Kuchler
No. I mean, I think there will be some changes. I think we’ve seen a lot of very splashy announcements from big drug manufacturers saying, we’ll invest 50bn in the US, et cetera. And so, I think you will see, on balance, some more production moving to the US, but it will be nothing like the whole supply chain, and it will not be for every drug. And I also think you will see maybe a little bit more pressure on European governments. Because the pricing policy is about trying to peg it to countries with GDP of sort of 60 per cent per capita of what the US has. So, we’re talking UK, France, Germany. So, I think drugmakers are playing hardball with those guys in their negotiations because they’re scared that whatever they agree to in those countries will affect US pricing. So those are the two main changes I can see coming. I can’t see a transformed industry that operates entirely differently.
Patrick Temple-West
Exactly. I will add, for pharmaceutical companies to change radically, I think Trump would have to do an Obamacare rewrite of the US healthcare system, because these sectors, these industries, are so interconnected. You have the whole US insurance aspect to this — Medicare, Medicaid, the hospital systems. Drug prices can’t be targeted in isolation.
Hannah Kuchler
I would say there’s one thing we also haven’t mentioned, if we’re looking at the entire sector, which is RFK, which I think is an area where there is a lot of nervousness. So, you know, RFK Jr, he comes in as US Health and Human Services Secretary, and he’s a vaccine sceptic. And so, there’s immediately a lot of worry at the vaccine companies. And we’ve seen this recently with some big overhaul he made of a key committee that sets the guidance for vaccines. Has a big impact on who takes what insurers cover. So, they’ve been worried by it.
And then there’s also been concerns that the cuts at the Food and Drug Administration will slow down approvals, and approvals of clinical trials. And, you know, for pharma, that’s really important. They’re on this ticking clock with their patents. And so, things need to happen as fast as possible. So, those things have worried them a bit. But overall, yeah, when it comes to the really big things that could change the business model forever, like tariffs and pricing, they’re still in wait-and-see mode, and they’re getting more and more sceptical about them actually happening.
Marc Filippino
All right, I wanna thank our guests. Hannah Kuchler is the FT’s global pharmaceuticals editor. Thanks so much, Hannah.
Hannah Kuchler
Thank you.
Marc Filippino
And Patrick Temple-West, he’s the FT’s US pharmaceutical correspondent. Thank you, Patrick.
Patrick Temple-West
You’re welcome, Marc.
Marc Filippino
All right, we’re gonna take a quick break and when we come back, we’re gonna answer some listener questions.
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Marc Filippino
We are back to answer some of your questions, and we’re here with Lauren Fedor, the FT’s deputy Washington bureau chief. Hi, Lauren.
Lauren Fedor
Hi, Marc.
Marc Filippino
So Lauren, this question comes from Michelle in the state of Illinois. During the first Trump administration, leaks were, I guess, the best way to describe them, were commonplace. In contrast, very few leaks have come from the second administration. What caused this change?
Lauren Fedor
I think that’s a great question. I think the first thing to say is that this administration is far more disciplined and professionalised across the board than Trump 1.0 was. And we saw that from the get-go, came with the president’s appointments to key cabinet positions. It also manifested itself in their kind of legislative agenda. Look, the ‘big, beautiful bill’. They muscled that through in pretty much record time. So a lot of discipline in this team. And that carries on to leaking too.
Marc Filippino
It’s not completely gone though, right? I mean, I don’t know if you would consider this a leak, but Signalgate, right? Operation Rough Rider where a bunch of national security conversations where a journalist was accidentally brought on Signal, the app, about military operations against the Houthis in Yemen. That got publicised.
Lauren Fedor
Yeah, absolutely. Look, I’m not saying there are no leaks, and I don’t think necessarily that our listener was saying that either, but it just means there’s fewer of them. Now, Signalgate is obviously one that is a huge embarrassment to the administration and caused them a lot of turmoil. I think when it comes to intentional, clearly intentional leaks, though, of members of the administration passing along damaging information, we see far less of that.
Marc Filippino
All right, thank you, Lauren, for that very detailed and thorough answer, I appreciate it.
Lauren Fedor
Thanks for having me, Marc.
Marc Filippino
And I wanna thank Michelle for her question. I hope we answered it. If you have a question about Washington and the global economy, send a message to the email in the show notes. It’s my name. There’s a bunch of weird letters in there. I would just look it up and we’ll try to answer it next week.
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This was Swamp Notes, the US politics show from the FT. If you wanna sign up for the Swamp Notes newsletter, we’ve got a link to that in the show notes. Our show is mixed by Sam Giovinco and produced by Henry Larson. We had help this week from Lauren Fedor. Special thanks, as always, to Pierre Nicholson. I’m your host, Marc Filippino. Our acting co-head of audio is Topher Forhecz. Original music by Hannis Brown. Check back next week for more US political analysis from the Financial Times.