An important segment of India’s business community woke up Wednesday to a fright: President Trump had again brandished the threat of tariffs on pharmaceutical imports.
“We’re going to be announcing very shortly a major tariff on pharmaceuticals,” he told guests at a dinner held by the National Republican Congressional Committee.
India has spent most of a week trying to find reasons for hope after the shock of being hit with a 27 percent blanket rate. One of the best was the fact that the global pharmaceutical industry was excluded from the first round of tariffs.
Last year India exported almost $13 billion worth of drugs, many of them generics. That makes pharmaceuticals India’s most successful industrial export. The United States is its biggest market.
In the short term, there’s no realistic way for the United States to replace the Indian supply: The next biggest exporter of generic drugs is China, which is suddenly facing higher tariffs than any other country.
Mr. Trump’s idea is that in the long term these medications can be made domestically. They would have to become much more expensive before that happened. Medicines come up in Economics 101 as the best example of a product with “inelastic demand,” or something that consumers will keep buying even when the price goes up.
India’s government ministers have been talking up the possibility of a bilateral agreement between their prime minister, Narendra Modi, and Mr. Trump. Two ministers spoke optimistically this week about the “new opportunities” these tariffs are creating for India. They are inspired by the fact that India’s nearest competitors in traded goods — including China, Vietnam and Bangladesh — will suffer from even higher rates.
On Mumbai’s stock market, shares of India’s biggest and most profitable drugmakers started the trading day sharply lower on the overnight news from Trump’s dinner.