Trump's 15% tariff cap beats the 200% threat, but creates immediate legal challenges for EU pharma. Here's what in-house counsel need to tackle now – and the strategic decisions that can't wait.
Key takeaways
- 15% tariff cap provides some stability but requires ongoing flexibility as policies evolve.
- In-house teams should audit product classifications and update contracts.
- Prepare for cost allocation disputes and implement dynamic pricing strategies.
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On 21 August, the EU and the US published the Framework on an Agreement on Reciprocal, Fair, and Balanced Trade ('Framework Agreement'), designed to put the two nations’ “trade and investment relationship – one of the largest in the world – on a solid footing and…reinvigorate [the nations’] economies’ reindustrialisation”, the joint statement read.
The Framework Agreement (FA) includes commitments by both the EU and the US, most notably the EU’s pledge to eliminate tariffs on “all US industrial goods” and the US promise to maintain a consistent 15% tariff cap for the vast majority of EU goods, including pharmaceuticals and semiconductors.
This will be welcome news for many pharma companies, as President Trump had previously threatened tariff rates of more than 200%. However, industry group the European Federation of Pharmaceutical Industries and Associations’ (EFPIA) warns that placing any tariffs on medicines has the “potential to create shortages, impact access for patients, and build barriers to global R&D”.
Immediate practical steps
Simeon Probst, partner for customs and international trade at PwC Switzerland, explains that while there remains uncertainty in the pharma market, there are steps companies can take that will benefit them regardless of how trade policies evolve.
The most pressing concern is ensuring existing supplier contracts adequately address the new tariff landscape. “In-house counsel should focus on ‘no-regret’ actions to manage the unpredictable tariff environment,” he said. “This includes reviewing and updating product origins, regularly checking tariff classifications, and renegotiating supplier contracts or delivery terms where it is possible (e.g. for consumables).”
Companies must verify product tariff classifications since misclassification could result in higher tariff rates or compliance violations, making this a critical first step for legal and compliance teams.
Legal teams should also audit contracts with suppliers for tariff escalation clauses and force majeure provisions. Many existing agreements may lack provisions for new tariff costs, creating potential disputes over cost allocation between parties. Priority should be given to high-value contracts and those involving critical supply chain components.
“Adjusting pricing strategies and leveraging available trade agreements can also help reduce additional costs,” Probst added.
Planning for longer-term challenges
While Peter L’Ecluse, partner at Van Bael & Bellis, suggests that a 15% tariff rate is largely manageable for most pharmaceutical companies, he stresses the need to be flexible and stay agile, especially as trade negotiations and regulatory disputes continue.
“The most obvious advantage of the FA is the legal certainty which the arrangement offers,” L’Ecluse said. “However, this may prove to be of limited value if US tariff policies change again as they have done repeatedly over the past few months.”
When it comes to longer-term challenges, there are three key strategic areas companies can focus on.
First, portfolio optimisation: the FA's exemption for generics while taxing branded pharmaceuticals at 15% creates clear opportunities for companies to reassess their product mix and market positioning.
Second, production strategy review: given the 12-18 month lead times for US production shifts, companies must make location decisions now based on five-year market projections rather than current conditions.
Third, pricing flexibility: early market indicators, including Eli Lilly's Mounjaro price adjustments, suggest companies need dynamic pricing models that can adapt to both tariff impacts and the separate most-favored-nation pricing pressures.
L’Ecluse suggests that the Supreme Court's upcoming decision in VOS Selections v. Trump adds another strategic consideration for pharma companies and in response, they should develop contingency plans for potential retroactive adjustments while maintaining current compliance frameworks.
“Any final adverse finding against the US President's tariffs may have a ripple effect on US trade policies as a whole,” he notes.
In the longer term, Probst suggests companies "think about reassessing market and production strategies for the next five years," emphasising that strategic planning must account for continued policy volatility rather than assuming the current Framework Agreement provides permanent stability.
Strategic considerations moving forward
The EU and US joint statement suggests that the FA is a “first step in a process that can be further expanded over time to cover additional areas”. It offers enhanced strategic opportunities for pharma companies operating across the EU into the US, and aims to “continue to improve market access and increase their trade and investment relationship”, the joint statement read.
However, the FA does introduce new costs and operational complexity for EU exporters, who previously enjoyed tariff-free access, Probst said.
“The 15% tariff will put pressure on profit margins and make EU products less price-competitive in the American market,” he added. “It forces companies to make tough choices: some may absorb the extra costs, while others could pass them on to US buyers or patients. To stay competitive, many companies may need to rethink their business models.”
It is worth noting that EU pharmaceutical law is currently undergoing major reform with trilogue discussions around the General Pharmaceutical Legislation continuing in the European parliament. “The combination of tariffs and a changing regulatory environment intensifies the need for EU pharmaceutical companies to act strategically – for instance, by streamlining operations, investing in regional production, and boosting global competitiveness,” DLA Piper lawyers recently wrote.
Probst advises companies to remain vigilant and flexible to adapt to ongoing changes in the trade environment, while also planning fallback solutions for worst-case scenarios.
Amidst the uncertainty, pharma companies should reassess their market and production strategies over the next five years, he adds. In the meantime, in-house counsel should implement immediate, protective measures – such as reviewing product origins and tariff classifications, and renegotiating supplier contracts – but remain flexible as the trade landscape continues to evolve.
“These steps, often used in combination, help companies stay agile and minimise the impact of new tariffs,” Probst concludes.