Ken Perez: The tariffs-driven trade war and its implications for healthcare

Given President Donald Trump’s use of tariffs and their significant worldwide economic impact, it’s not surprising that the word tariff has been considered a candidate for Word of the Year.^a

Whether or not you agree with Trump’s tariff policy, the United States has a powerful ability to impose tariffs, rooted in the immensity of the U.S. economy. With an estimated GDP of $30.5 trillion in 2025 — of which consumption accounts for roughly 70% — the U.S. market is extremely lucrative for foreign exporters of goods and services.^b

Tariffs imposed by the United States also can have a hugely powerful impact, particularly when they form the basis of a trade war. For economists, the challenge is to understand the extent to which that impact might be favorable or unfavorable not only for the nation, but also for the nation’s industry sectors, including healthcare.

Trump’s trade war

In 2024, the average tariff rate on U.S. imports was 2.5%.^c Since February 2025, Trump has embarked on a trade war, using tariffs to support his “America First” agenda by raising tariffs on more than 100 countries, especially the nation’s three biggest trading partners.

As of Oct. 27, in a shifting environment, Mexico and Canada faced an array of tariffs as high as 50% on aluminum and steel.^d And also in late October, through negotiations, the Trump administration backed off of threats to impose a tariff of 157% on Chinese goods.^e

Bank of America economists have described the flurry of tariff announcements and threats as “the game that never ends.”^f

Projected impact of tariffs on the economy

In September, The Budget Lab at Yale modeled the economic impact of the Trump tariffs, concluding that they would raise the average effective tariff rate from 2.5% to 17.9%, the highest since 1934.^h

Under the model, prices rise by 1.7% in the short-run, U.S. GDP growth slows by 0.5% and the unemployment rate rises by 0.3% by the end of 2025. Although it shows long-run U.S. manufacturing output expanding by 2.7%, that gain is outweighed by decreases in other sectors, such as construction output, which contracts by 3.7%.^g

The projected impact of tariffs on U.S. healthcare

Among U.S. imports of medical and pharmaceutical supplies, more than 70% are sourced from 10 countries. Factoring in their 2025 tariff rates, the overall tariff percentage for all countries exporting these products into the United States will be about 20%.

Historical snapshot: Trump tariffs on countries that are leading
medical-pharmaceutical importers

At the end of March, a Black Book Research survey projected that costs for medical supplies and pharmaceuticals would rise by 15%.^h But given the subsequent reciprocal tariffs, the overall cost hike could be in the 15%-20% range. As these items account for about 20% of the average hospital’s total expenses, the tariffs could increase total hospital expenses by 3%-4%.

Industry responses to healthcare-related tariffs

Leading healthcare provider organizations, such as the American Hospital Association and the Association of American Medical Colleges, support efforts to increase domestic production capacity.

But they also advocate for exemptions from tariffs for pharmaceuticals, medical supplies, medical devices and medical equipment. And they do so with good reason, because delays in refreshing the Bureau of Labor Statistics Producer Price Index and other indexes mean that case-based payments (e.g., from Medicare), per-diem payments and even fee-for-service schedules may fail to keep pace with rapidly increasing prices for such inputs.

As an indication of the strategic importance of pharmaceuticals, the U.S. Department of Commerce in April launched a Section 232 investigation into the national
security implications of pharmaceutical and related product imports.

President Trump’s stance regarding tariffs on pharmaceuticals

On Aug. 5, Trump told CNBC’s “Squawk Box” that he will initially impose a “small tariff” on pharmaceuticals, but then in one year to a year and a half “maximum” he will raise that rate to 150% and then 250%.ⁱ

Then on Sept. 25, Trump announced a 100% tariff on brand-name or patented imported drugs starting on Oct. 1, unless the drugmaker is building a manufacturing plant in the United States (although tariffs on drug imports from the European Union and Japan will be capped at 15%).^j

That announcement got the attention of the largest multinational pharmaceutical companies. On Sept. 30, Pfizer agreed to lower the prices it charges to state Medicaid programs for almost all its drugs to be comparable to what it charges other industrialized countries (aka most-favored-nation pricing). Because it is building and expanding factories in the United States, Pfizer will receive a three-year grace period exempting it from the 100% tariff.^k

Similarly, on Oct. 10, U.K.-based AstraZeneca agreed to most-favored-nation pricing for Medicaid programs and for its new drugs, and it promised to spend $50 billion in expanding its manufacturing in the United States. In return, AstraZeneca will receive a three-year grace period exempting it from the 100% tariff.^l As of Oct. 28, other drugmakers were expected to follow Pfizer’s and AstraZeneca’s lead.

Conclusion

Trump’s aggressive use of tariffs has reshaped U.S. foreign policy, fomenting numerous trade disputes and challenges for multinational corporations. Because of the tariffs, our nation will experience some short-term economic pain, primarily in terms of inflation. For healthcare, the cost of medical supplies and pharmaceuticals could rise by 15%-20%.

The deals struck by Pfizer and AstraZeneca could mitigate some of the inflationary effects of the growing trade war, but tariffs have clearly re-emerged as a major factor geopolitically and in the calculus of healthcare finance.

Footnotes

a. See Dictionary.com, “Dictionary.com’s 2025 Word of the Year Is…,” Oct. 28, 2025.
b. Statista, “The 20 countries with the largest gross domestic product (GDP) in 2025,”  accessed Oct. 27, 2025.
c. Neufeld, D., “Chart: the average U.S. tariff rate (1890-2025),” Visual Capitalist, April 10, 2025.
d. White & Case, “Trump Administration increases steel and aluminum section 232 tariffs to 50% and narrows reciprocal tariff exception,” June 13, 2025.
e. Liu, J., “US and China have reached a framework agreement on trade ahead of Trump-Xi meeting. Here’s what we know,” Marketplace Asia, CNN Business, Oct. 27, 2025.
f. Brown, C., “The new Trump-era reality: Trade war is everything,”  Axios, July 11, 2025.
g. The Budget Lab at Yale, “State of U.S. tariffs: September 26, 2025,”  Sept. 26, 2025.
h. Gaivin, K.S., “Tariffs expected to increase healthcare costs by 15% within months: survey,” McKnight’s Senior Living, March 31, 2025.
i. Constantino, A.K., “Trump says pharma tariffs could eventually reach up to 250%,”  CNBC, Aug. 5, 2025.
j. Luhby, T., “A 100% tariff on some imported drugs is coming October 1, Trump says,” Sept. 26, 2025.
k. Luhby, T., et al., “Trump announces ‘TrumpRx’ site for discounted drugs and deal with Pfizer to lower prices,” CNN Business, Sept. 30, 2025.
l. Luhby, T., et al., “Trump announces deal with AstraZeneca aimed at lowering drug prices,” CNN, Oct. 10, 2025.