Shifts in global trade policies are challenging for pharmaceutical manufacturers, but the tariff pause provides a reset opportunity — and ways to survive and prosper — potentially through reshoring.
Read also: Trump Administration Advances New Series of Tariffs Amid Global Trade Concerns
Pharmaceutical manufacturers have been dealing with major uncertainty over the past several months as the Trump administration implements economic policies that affect relationships with global trading partners. Tariffs, tariff pauses, court orders, injunctions, reversals and ongoing litigation all send conflicting signalsadding to the confusion.
That said, the administration’s policy aims are unambiguous, and as manufacturers explore options, they are discovering new opportunities to reduce costs and increase profit margins. Here’s a brief look at U.S. policy objectives, how some pharmaceutical manufacturers have responded and recommendations for navigating uncertainty.
What U.S. Trade Policy Goals Mean for Drug Manufacturers
While uncertainty swirls around trade policy implementation, the government’s objectives are clear. The administration has three primary goals:
- Protect sensitive technologies
- Boosting the manufacturing base
- Address trade deficits
Safeguarding sensitive technologies is a national security issue. Pharmaceutical manufacturers must assess their exposure to risk as the administration moves to strengthen protections.
After assessing their exposure to trade policy actions related to sensitive technology, manufacturers can use the tariff pause as a reset, looking at creative ways to mitigate risk. For example, one company found that although customer demand was strong, full tariff implementation would diminish their competitive advantage.
The administration’s recent executive order to reduce barriers to reshoring is another factor to consider. Policymakers cite economic benefits in the reshoring push, including new U.S. jobs in manufacturing amplified by complementary jobs in other sectors, as well as beneficial effects from reducing trade deficits.
To mitigate that risk, the company looked for ways to improve competitiveness, such as cost reductions. Options for cutting expenses include reducing direct and indirect labor costs, but beyond that, companies can consider other factors that affect costs. Actions like renegotiating supplier contracts and leveraging the company’s buying power centrally rather than making purchase decisions locally can significantly reduce costs.
Another example: companies can evaluate the margins of each SKU they offer, assessing profitability and making decisions based on the value each SKU generates. Are unprofitable SKUs a justifiable cost to support a broader package that does generate profits? Does the company have a technical advantage that supports further investment? The answers to questions like these can steer manufacturers in the right direction.
Pharmaceutical manufacturers who find they have a diminished competitive advantage and reduced customer demand are in a tough spot. Some are considering options that can capture additional market share and protect margins in sectors that are still profitable, while others look at restructuring.
Reshoring or nearshoring may be the best option for restructuring, but it’s important to keep in mind that there’s no cookie-cutter approach that works for everyone. The demand profile, competitiveness and tariff impact will be unique for each operation, so the approach must be tailored accordingly.
A Closer Look at Reshoring Challenges and Opportunities
Pharmaceutical manufacturers contemplating reshoring their operations should think through the relocation implications carefully because success requires proficiency at technical transfers. It’s not just a matter of replicating a process that takes place in one location to another. Even small process changes can have considerable impact.
Local conditions can play a role too. For example, humidity levels can affect processing, so manufacturers have to account for all aspects of production and evaluate how relocating the operation could change the process to avoid wasting time and money. But when handled correctly, reshoring can deliver key benefits, including:
- Lower total cost of ownership: Reshoring companies can achieve major cost savings in a variety of ways, including access to higher quality supplies. Typically, reshoring reduces product lead time, which speeds time to market. Reshoring manufacturers also usually eliminate language barriers and simplify sourcing, testing and release processes.
- Opportunities to re-plan facilities: Reshoring gives drug manufacturers a chance to optimize and modernize manufacturing facilities. After moving operations to the U.S., some manufacturers have redesigned factory layout to improve efficiency. Others have deployed AI tools such as digital twins, feeding real-time data from sensors into smart technologies that analyze inputs to predict outcomes and suggest process changes that improve results.
- Fewer supply chain issues: Pandemic-era drug shortages underscored the risks inherent in global supply chain dependencies. Bringing operations and sourcing closer to home makes it easier to address issues like ingredient quality, warehousing and transportation standards and packaging specifications.
Capital is tight, but pharmaceutical manufacturers have options, including reshoring and operational improvements that increase competitiveness. Success in this environment requires a mindset shift, an attitude that rejects statements like, “It can’t be done” and asks instead, “How can we do it?”
That’s how reshoring companies have increased capacity and reduced downtime. For example, one company was able to improve overall equipment effectiveness from the 40% to 50% range to 70% to 75%. The obstacles manufacturers face are real, and challenging the status quo is the only way to achieve improvements on that scale.
Lastly, pharmaceutical manufacturers should keep in mind that once a pendulum starts swinging, it gains momentum that is difficult to reverse. Countries like China that have been primarily known as suppliers are now developing drugs that biotech firms find compelling, and Western companies are making significant investments to acquire the rights to technologies originally developed in China.
As pharmaceutical manufacturers navigate tariff uncertainty as well as shifts in the biotech discovery landscape, they’ll confront many challenges and opportunities. Those who find creative ways to overcome obstacles and embrace emerging prospects will find success, and the tariff pause is an ideal time to consider the next step forward.
