US mulls tariffs on Swiss drug exports, weighing on Novartis and Roche – report
The leading Swiss newspaper has reported that the US is considering placing tariffs on pharmaceuticals from Switzerland. Roche and Novartis stock each fell 1% after the news broke.
Neue Zürcher Zeitung reported that US Trade Representative Robert Lighthizer told pharmaceutical representatives the Trump administration was considering the move. Tariffs do not appear to be in the immediate offing, but they would potentially affect Swiss giants Novartis and Roche along with other companies that manufacture in Switzerland, including Merck KGaA and US biotech Biogen, which is currently constructing a new facility in the country.
Thus far, the China-US trade war’s impact on pharma has been largely spectral, with lots of talk but little action. Economists and politicians on both sides of the Pacific haven’t failed to note the US’s heavy reliance on China for raw pharmaceutical ingredients, with one Chinese economist proposing Beijing cut off sales of antibiotics and pharmaceutical ingredients in response to US tariffs. But so far both Beijing and Washington have carved out exemptions to assure the largely free flow and unfettered manufacture of drugs.
Donald Trump, though, has broadly targeted US trade deficits worldwide, and pharmaceuticals are the leading weight beneath the US’s $18.9 billion trade deficit with Switzerland.
The Swiss drug industry relies heavily on the American market. The US imported $14 billion in pharmaceuticals in 2018, according to the US Trade Office of Representative, over a third of Swiss exports to America.
In 2017, the US accounted for nearly a third of all Swiss pharmaceutical exports.
Swiss pharmaceutical exports by importing country, 2017 – Visualization by MIT’s Office of Economic Complexity
The news comes several months after Trump and Swiss President Ueli Maurer said they were keen on advancing a trade deal. There’s been little word since, but Trump has previously used tariffs as a stick to expedite trade negotiations, notably threatening steep automotive levies on Canada as he sought to renegotiate the North American Free Trade Agreement.
Beijing and Zurich represent opposite ends of the pharmaceutical industry. China is the main global source of antibiotics, supplying, by one reported estimate, 97% of antibiotics for the US and a large portion of the active pharmaceutical ingredients used to manufacture drugs in the US.
Switzerland, despite a population around 8.5 million, exported 11% of the world’s finished drugs in 2017. That was second-most of any country world, behind Germany and ahead of the US.
The US imports 20% of all drugs worldwide. It exports 8.9%.
Pharmaceutical exports by country, 2017
Pharmaceutical imports by country, 2017
Long a stalwart sector, the drug industry has helped keep the Swiss economy afloat amid a global economy slowed by, among other factors, the trade war. The country’s economy has already been hit by US steel and aluminum tariffs.