11/10/2025
Article

Pharmaceuticals

Beacons of hope under pressure – the pharmaceutical industry caught between US tariffs and price dictates

In the first half of 2025, the pharmaceutical industry was the beacon of hope for the struggling European process industry. However, the latest political twists and turns of the Trump administration threaten to diminish the industry's appeal: MFN doctrine, tariffs and production requirements are unsettling manufacturers in the EU and especially in Switzerland. This update analyses the geopolitical climate, the prospects for Europe's pharmaceutical industry, particularly in Germany, and why this once-celebrated innovative industry is now itself facing a crisis.

Written by Armin Scheuermann

Depiction of the impact of new US policy on the European pharmaceutical industry. The composition shows a map of Europe with the American flag. — The economic policy of the Trump administration becomes a test of endurance for European pharmaceutical manufacturers.

Update – as of 28 October 2025

As recently as spring 2025, the pharmaceutical industry was considered the stabilising backbone of the chemical and pharmaceutical industry in Germany and Europe. In our February economic report, we asked ‘Is Europe's pharmaceutical industry in danger?’ and examined the implications of Trump's policies for 2025 and beyond (see article below). At that time, the clouds on the horizon still seemed far away – because pharmaceuticals scored points with research strength, new active ingredients and a solid export business.

But it is now clear that the pharmaceutical sector is not immune to geopolitical turmoil – and has been at the centre of an escalating dispute between Brussels, Bern and Washington since summer 2025 at the latest. What was once seen as a beacon of hope has suddenly become a risk position. The reason: under Trump, the US is pursuing economic protectionism – with far-reaching consequences for European drug manufacturers. Although there are currently no punitive tariffs on drugs, the signals are unmistakable: price fixing, production incentives and geopolitical leverage are putting transatlantic drug supply in a new light.

Trade framework and political dynamics: between basic tariffs and strategic pressure

Since April 2025, the US government has been levying a general basic tariff of 10% on almost all imports. Although pharmaceuticals were initially exempt from these tariffs, the industry is rightly feeling insecure: in the Trump administration's economic policy strategy documents, the supply of medicines is increasingly being treated as a ‘national security issue’.

Formally, no punitive tariffs have been imposed on pharmaceuticals to date, either on the EU or Switzerland. However, Washington has created scope for itself to evaluate import dependency for active pharmaceutical ingredients (APIs) and finished products via Section 232 review procedures – a potential harbinger of future quotas, tariffs or Buy American clauses. In addition, trade talks between the EU and the US have been focusing on industrial products, critical raw materials and energy markets since spring 2025. Pharmaceutical products are not officially on the agenda, but unofficially, the debate on drug prices, supply sovereignty and strategic dependencies is intensifying.

Scales labeled MFN with an American weighing pan (left) and a European weighing pan (right) — The “most favored nation” price fixing (MFN) threatens to become a new escalation in US protectionism.

The MFN doctrine: myth, debate or creeping reality?

One often-cited escalation stage is the so-called ‘most favoured nation’ (MFN) price fixing, according to which medicines in the US may not cost more than in other wealthy countries. There is still no MFN decree that legally enforces price fixing. Although there was an attempt to do so under Trump in 2020, it was stopped by the courts. So far, there is no official new edition or executive order for 2025. However, the concept lives on in political debate. Think tanks such as the Hudson Institute and CSIS recommend international price referencing. And in the wake of Medicare reform (under the Inflation Reduction Act), the US government is gaining increasing leeway to negotiate prices – which is seen in the industry as a creeping MFN convergence. US Health Secretary Robert F. Kennedy Jr. is also an advocate of MFN price fixing, which he justifies as follows: ‘The US has co-financed drug development worldwide for too long. Now it's time to put an end to global freeloading.’

In fact, several large pharmaceutical companies have already concluded concrete price agreements with the US government in 2025 that are based on MFN logic:

In September 2025, Pfizer agreed to offer prescription drugs in the Medicaid programme at prices that correspond to the lowest level in OECD countries. In return, the company received a temporary exemption from customs duties on US imports and commitments to regulatory relief. At the same time, Pfizer committed to investing billions in US research and production. The deal is considered a precedent.
AstraZeneca followed shortly thereafter with a similar MFN agreement. The company offers selected original preparations for US patients at the lowest international prices and in return received a three-year exemption from threatened 100% tariffs. The deal also includes investment commitments for US production sites.
Merck & Co. concluded a similarly structured agreement in October 2025, combining price reductions, linkage to international reference prices and exemption from threatened tariffs.

These agreements mark a historic intervention by the American government in the pharmaceutical market. The combination of price commitments, tariff exemptions and investment pledges creates a de facto mechanism for price capping based on MFN logic – without formal legislation. The signal effect is clear: international manufacturers are under pressure to make similar concessions.

Production pressure made in the USA: From incentives to structural location disadvantages

Since taking office, the Trump administration has been pushing for the relocation of pharmaceutical supply chains. Under the banner of ‘Project Secure Pharma Supply,’ targeted incentive programmes for API and fill & finish investments in the USA are being created. The political thrust is clear: those who produce in the USA will be given preferential treatment in terms of market access, regulatory support and potentially also customs issues. Medium-sized pharmaceutical companies from Europe that do not have manufacturing plants in the USA are coming under particular structural pressure here. Corporations such as Roche, Novartis and Sanofi, which have their own US production networks, are better positioned.

Original preparations in the geopolitical crosshairs

The discussion on pharmaceutical trade policy focuses not on generic drugs, but on original preparations. These are patent-protected medicines that are marketed under a brand name and often achieve high margins. Why these in particular? Because they are politically visible, economically significant and have the largest price differences. According to OECD data, US prices for such drugs are on average three to four times higher than in Europe. If an MFN rule were actually introduced, a low list price in Germany, France or Switzerland could become the reference price for the US market. This would fundamentally change the global pricing strategy of European manufacturers. The result: later market launches in Europe, higher list prices with stronger discount models, or a strategic shift in R&D investments.

Market situation & outlook: Growth with reservations

Global pharmaceutical markets continue to grow, but the momentum is shifting. According to EFPIA, North America accounted for 54.8% of global pharmaceutical sales in 2024, while Europe accounted for 22.7%. Of the revenues from new approvals, the US accounted for around 67% between 2019 and 2023, while the five largest EU countries together accounted for less than 16%. Industry service provider IQVIA forecasts that global pharmaceutical spending will continue to rise until 2029, but with less momentum in Europe. In addition to market forces, there are political uncertainties, regulatory burdens and locational disadvantages. In Germany, the VCI expects stagnation in 2025, with no recovery expected before 2026. Although Eurostat reports slightly positive industrial production, the picture remains characterised by uncertainty.

Conclusion: Pressure to adapt instead of escalation

Tariffs, MFN price fixing and production requirements are not yet a legal reality. But they are scenarios with growing political traction. For Europe's pharmaceutical industry, this means it must make its pricing architecture more resilient, its launch strategies more flexible and its production networks more geopolitically resilient. The era of stable transatlantic relations is over. Welcome to the age of pharmaceutical realpolitik.

February 2025: Europe's pharmaceutical industry at risk? What Trump's policy means for 2025 and beyond

The pharmaceutical industry is experiencing an upswing worldwide, but European manufacturers are facing challenges: the new American administration could make access to the most important market more difficult – with serious consequences for the pharmaceutical industry.

Antidepressants encourage school shootings and COVID-19 vaccines are crimes against humanity – the claims of Robert F. Kennedy Jr. are part of the cacophony of colourful personalities in current US politics. What makes it so explosive is that Kennedy not only bears a famous name, the self-confessed anti-vaccinationist is also the designated health minister of the Trump administration. And the appointment highlights the possible consequences of Trump's policies for pharmaceutical manufacturers in Europe.

Slimming injections, cancer and Alzheimer's drugs, new biologicals – over the past two years, there have been many positive reports of new investment projects by pharmaceutical manufacturers in Europe and Germany. This trend is being driven not only by the development of new products, but also by specific location factors. Manufacturers are currently reaping the rewards of their long-standing development efforts: German manufacturers alone could receive approval for 40 new compounds by 2025. However, clouds are already on the horizon.

As early as 2024, the chemical-pharmaceutical industry was confronted with significant economic and geopolitical challenges worldwide. In both Germany and Europe, the sector faced structural adjustments, cost increases and global market dynamics. The global economy has not picked up as hoped, which is also reflected in the key data of the chemical-pharmaceutical industry. Since the second quarter of 2024, the industry has not been able to build on the good start to the year. This applies not only to the industry as a whole, but also to pharmaceutical manufacturers. Recent analyses show that sales of pharmaceutical products abroad have recently declined and production has fallen.

Germany: challenges for the location

According to the industry association VCI, the chemical-pharmaceutical industry in Germany presents a mixed picture. Although production increased by 2% in 2024, it is still 16% below 2018 levels. Pharmaceutical production in particular recorded a decline of 1.5%, due to supply chain problems, capacity bottlenecks and high location costs. Declining orders from Europe and the US reinforced this downward trend. The order situation remained weak and production capacities were only utilised at 75%. For four years, these figures have been below the economically viable level, resulting in the permanent shutdown of production facilities.

Germany's competitiveness suffers primarily from high production costs, energy prices and an increasing regulatory burden. Markus Steilemann, President of the German Chemical Industry Association (VCI), was highly critical of the political situation: ‘The Commission is regulating Europe into a standstill.’ The demand for bureaucracy reduction and targeted investments to increase the competitiveness of German locations was more urgent than ever in 2024. Chemical companies, in particular, are increasingly willing to relocate their innovation and production capacities abroad, especially to the USA and Asia, where better economic conditions prevail. China has recently invested heavily in its own pharmaceutical industry and is increasingly positioning itself as a competitor to established European and North American companies.

Europe: mixed developments in global competition

The European chemical-pharmaceutical industry also faced major challenges in 2024. According to the VCI, high regulatory hurdles for drug prices in many European countries and the increasing dependence on non-European raw material suppliers exacerbated the situation. Countries such as France and Italy recorded falling purchasing manager indices, indicating weak industrial activity. Nevertheless, Europe remained one of the main buyers of German pharmaceutical exports, although a decline in orders was also noticeable here.

However, the greatest uncertainties are looming from the USA – the largest and most important market for medical technology and pharmaceuticals worldwide, where around half of the global turnover in the pharmaceutical sector is generated. With a share of 16.4% of global exports, the USA is also the largest customer for pharmaceutical products from Germany. If the new US President Donald Trump is serious about his industrial plans, this will not be without consequences for European pharmaceutical manufacturers either. Trump not only plans to introduce a general tariff of around 10% on all imports, his policy also weakens global trade agreements and could lead to a fragmentation of the world economy. This would significantly reduce the planning security for European pharmaceutical companies. One possible consequence: research and production could increasingly be relocated to the USA. In the German pharmaceutical industry alone, around 28% of jobs depend on exports to the USA.

However, it is difficult to assess how real these fears are – Trump's political manoeuvres have been too unpredictable in the past – and the EU Commission is already threatening countermeasures. In addition, the EU is an important innovation area for the pharmaceutical industry. Projects such as the funding of digital health applications (DiGA) and an increased focus on sustainable production methods characterise the trends. Politicians have also recognised this and are supporting the industry's efforts, for example in Germany with the National Pharma Strategy implemented in 2024.

Trends and innovations as the key to the future

Megatrends such as digitalisation, sustainability and biotechnology are increasingly shaping the chemical-pharmaceutical industry. Research and development (R&D) remain central areas. According to the BPI, German pharmaceutical companies continue to invest around 16% of their turnover in innovative technologies and products. Biopharmaceuticals, personalised medicine and digital health solutions such as DiGA are at the centre of the innovation agenda.

The green transformation is another key trend. The pressure to make chemical and pharmaceutical processes and products more environmentally friendly is leading to intensive investment in sustainable technologies. The integration of artificial intelligence (AI) into production and R&D processes is seen as a key innovation to enable efficiency gains and reduce production costs.

Cautious optimism for 2025

The outlook for 2025 is cautiously optimistic. The VCI predicts a small increase in production of 0.5% for the chemical-pharmaceutical industry in Germany. While the pharmaceutical segment could experience a slight recovery, the chemical segment will probably stagnate. Worldwide, the market continues to be driven by strong demand for healthcare services and new drugs. In the current ‘Pharmaceutical Chemicals Global Market Report 2025’, the market research company The Business Research Company forecasts an annual growth rate of 7.4% by 2029.

Conclusion: The challenges of 2024 have revealed the structural weaknesses and need for adjustment in the chemical-pharmaceutical industry in Germany. Above all, political uncertainties are currently slowing down the expansion of the industry. The industry, accustomed to success, is facing a strong headwind from US trade policy and tighter regulations. But the strength of the European pharmaceutical industry – particularly in innovation and research – gives cause for hope. The industry's R&D share of 10 per cent of production value is three times higher than the industry average. The realignment of production processes and the digital transformation are opening up promising prospects. Politically, the coming years are likely to be turbulent – or as a journalist once wrote: ‘Trump is unpredictable – and proud of it.’

March 2024: Pharmaceutical industry facing challenges and opportunities in 2024

Blockbuster or personalized medicine? The possibilities for pharmaceutical manufacturers seem almost endless. However, the industry, which is accustomed to success, has recently been facing fierce headwinds from competition, regulatory intervention and rampant costs. This is forcing many manufacturers to rethink - and to use new technologies and methods.

Novo Nordisk achieved a major success with the active ingredient Semaglutide: the drug catapulted the Danish pharmaceutical company to the top of the most valuable listed companies in Europe virtually overnight in 2023. And Novo Nordisk has the growth market for weight loss injections almost to itself so far: only the American competitor Eli Lilly has offered an alternative preparation to date. The shareholders' expectations are no coincidence: analysts at the investment bank Goldman Sachs estimate that sales of weight loss injections will grow from the current 6 billion US dollars to 100 billion dollars by 2030. This is another reason why Lilly wants to build a new plant in Alzey in the Palatinate, Germany, and invest 2.5 billion dollars.

The hype surrounding the new slimming products highlights current developments in the pharmaceutical industry. After the boom in the coronavirus years, the industry has recently landed hard. In 2022, the industry in Germany still achieved moderate production growth of three percent; in 2023, production in the successful industry shrank by 1.4 percent, according to the industry association vfa, and in 2024, the association only expects growth of 2.0 percent.

In Germany and Europe in particular, the increased energy prices are causing problems for the industry: In contrast to the chemical industry, the energy intensity of pharmaceutical production is below average, but manufacturers are dependent on inputs from energy-intensive industries. Added to this are inflation, high interest rates, new tax laws and growing political risks.

Pricing power leads to loss of confidence

In the USA, the most important market for pharmaceuticals, additional trouble is looming: in response to rising prices, the Biden administration has decided, as part of the Inflation Reduction Act, that the prices of some of the most commonly used drugs should be negotiable for the first time in future. After the hype surrounding the performance of drug manufacturers in the fight against the Covid pandemic, the crash was abrupt: not least the discussion surrounding the Inflation Reduction Act put the high-price policy of some originator drug manufacturers in the spotlight. The loss of confidence means that future decisions by companies – be it pricing decisions, mergers and acquisitions, investments in artificial intelligence or staff cuts – will be scrutinized closely.

However, it is not just rising costs and the more critical public eye that are putting pressure on the environment for pharmaceutical manufacturers. The impression created by the success stories surrounding weight loss injections is deceptive: competition in the pharmaceutical market is becoming increasingly fierce – and not just for blockbuster topics such as the treatment of diabetes and obesity. More and more manufacturers are therefore researching preparations for rare diseases or individualized therapeutic approaches - and are prepared to take higher risks to do so. In particular, drug manufacturers are hoping for exciting new opportunities from the use of transformative technologies such as artificial intelligence and digital health in biopharmaceutical research. The ability to embrace these technological advances is becoming an increasingly important competitive factor.

Using artificial intelligence throughout the pharmaceutical value chain

This is by no means just about the use of AI in drug development. There is potential in the entire pharmaceutical value chain – from identifying promising active ingredients, planning clinical trials and writing documents to marketing and customer acquisition. The market research company PwC estimates that generative artificial intelligence can make a significant value contribution in more than 200 areas of pharmaceutical production.

However, there is also a need for action in other areas: While sales growth is still important, especially with a view to the "stock market story", in order to collect necessary capital, cost management is also coming to the fore. The Bayer Group provides a prominent current example: the pharmaceutical and agrochemical manufacturer wants to cut thousands of jobs by the end of 2025 – especially in management. Group CEO Bill Anderson is focusing on a cultural change in which managers act more as coaches for their employees, while employees are given more decision-making powers. However, other companies in the pharmaceutical industry have also recently announced cost-cutting measures. This is because cost pressure is increasing: High wage settlements as a result of inflation are a burden, as are more expensive energy and rising prices for primary products. And the latter are increasingly no longer available from traditional suppliers as a result of plant closures in the chemical industry, which is currently being hit even harder. In addition, the patent protection of many of the pharmaceutical manufacturers' cash cows is expiring. According to estimates by the market research company Evaluate Pharma, drugs with an annual turnover of USD 57 billion will lose their patent protection in 2023 alone. And even the manufacturers of biopharmaceutical drugs, who are accustomed to success, have had to tighten their belts since 2022: The heroes of the Covid pandemic have lost significant stock market value and increased interest rates are also weighing on the willingness to invest venture capital.

Conclusion:

2024 is likely to be an exciting year for the global pharmaceutical industry, with both opportunities and challenges. Manufacturers will need to understand their competitive environment like never before and drive innovation while keeping an eye on costs. AI and other new technologies are becoming increasingly important, while strategic mergers and acquisitions are also tried and tested means in the battle for a sustainable position. Because there are also lucrative fields beyond weight loss injections – for example in the fight against cancer and Alzheimer's – in which pharmaceutical manufacturers can make a contribution.

Author

Armin Scheuermann

Chemical engineer and freelance specialised journalist