President Trump announced 100% tariffs on semiconductors earlier this month but didn't share a fresh deadline about his threat to raise pharmaceutical tariffs. Ironically, the chip, or semiconductor, sector rallied on the news, but the health care sector found itself back at the bottom of the sector scoreboard the day of the announcement.
The rally in chip stocks reflected relief that Trump included exemptions for chipmakers with operations in the United States, allowing major firms like Taiwan Semiconductor Manufacturing (TSM) and Nvidia (NVDA) to likely escape the worst effects of tariffs on their businesses.
Health care, like semiconductors, could soon face U.S. tariffs as well, but it's unclear if pharma firms will receive similar largesse. In the meantime, pharmaceutical and other health care providers remain under pressure from the threat of 250% tariffs on drugs and devices made outside of the United States.
It's not clear when Trump will announce the plan, but it appears imminent, and as of early August, the S&P 500 health care sector was down nearly 12% year over year versus 22% gains for the S&P 500 index® (SPX) over the same time period. In fact, health care's performance versus the broader market is the worst in 25 years, and the sector didn't get help recently when shares of Eli Lilly (LLY), one of its largest components, fell 14% in one day on disappointing trial data for its obesity pill.
Not all the pressure on health care stocks reflects tariff worries. The health insurance industry's challenges include rising costs and federal investigations into billing practices. And pharmaceutical firms struggle amid the expiration of key product patents. But the tariff threat is another storm cloud.
The questions now are whether the market has built in the worst possible impact of tariffs and if the administration is likely to grant exceptions as it did to semiconductor firms. There's a sense that retail investors may have drawn this conclusion.
Buying on the health care dip?
Investors tracked by Schwab have shown a renewed interest in health care companies recently, according to the Schwab Trading Activity IndexTM (STAX)—a proprietary, behavior-based index that analyzes retail investor activity from Schwab's millions of client accounts. The July STAX report saw health care claim second place among all sectors in net buying, behind only communication services.
"The health care sector as a whole has really underperformed this year," said Joe Mazzola, head trading and derivatives strategist at Schwab. "That being said, our investor clients like to look for deals, especially because so many are concerned about valuations. Given that the sector is trading just slightly above its 52-week low and building some positive technical momentum, they might be finding value while also building positions at compelling entry points."
Manufacturing complexities could introduce pricing challenges
Whether this continues could depend partly on where tariffs land. Like semiconductor chips, health care products are complex and increasingly difficult to make. One drug category under particular scrutiny in terms of trade is biologics, which are made from living organisms or their components and include vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins.
Unlike common chemically synthesized drugs, most biologics are complex mixtures that aren't easily identified or characterized. They also tend to be heat sensitive and susceptible to microbial contamination, the U.S. Food and Drug Administration (FDA) said. That makes manufacturing far more difficult, and much of it incorporates operations outside of the United States.
Amgen (AMGN) and Biogen (BIIB) are two biologic makers with the most "foreign exposure," according to a Jeffries research report cited by trade publication Pharma Manufacturing earlier this year. They have manufacturing operations in Ireland and Singapore, and Trump has specifically mentioned Ireland as a country he's targeting in terms of going after drug companies that receive favorable tax treatment for manufacturing there. Other large drug firms with operations in Ireland include AbbVie (ABBV), Bristol-Myers Squibb (BMY), Gilead Sciences (GILD), Merck (MRK), and Johnson & Johnson (JNJ), Jefferies said.
A survey released in March by the Biotechnology Innovation Organization (BIO) showed nearly 90% of U.S. biotech companies rely on imported components for at least half of their FDA-approved products, Pharma Manufacturing reported. That makes them vulnerable to tariffs on imports from Canada, China, and the European Union (EU).
"Proposed tariffs on the EU would force 50% of companies to scramble for new research and manufacturing partners," according to BIO, with 80% of biotech companies surveyed indicating that they would need at least 12 months to find alternative suppliers, while 44% would require more than two years.
In comments submitted in May to the Department of Commerce, BIO said, "While BIO supports more U.S. pharma production—the stated goal of proposed tariffs—reshoring will take years, cost billions, and cannot be done immediately. Tariffs on pharmaceuticals would threaten America's security, economy, biotech leadership, and access to drugs."
Nearly two-thirds of U.S. pharmaceutical consumption is manufactured domestically, but the complex supply chain still requires global trade, BIO added. It said a 25% tariff would add $50 billion in costs for the industry, potentially "devastating innovation." Patients would lose access to drugs they need, and "fewer new treatments would be developed."
Earlier this year, the American Hospital Association (AHA) wrote to Trump, urging him to consider exceptions for medical devices and pharmaceuticals made in Mexico, China, and Canada, citing existing supply problems. "It is especially critical to have these exceptions for products already in shortage and for which production in the countries subject to increased tariffs supply a significant part of the U.S. market," the AHA said then.
The letter referenced not just finished products but also active pharmaceutical ingredients (APIs), the raw materials for pharmaceuticals, many of which come from China.
Trump said he'd initially impose a small tariff on pharmaceuticals, but within a year to a year and a half, he'd raise that to 150% and then 250%, CNBC reported last week. "We want pharmaceuticals made in our country," Trump told CNBC.
The market isn't taking this well. The Nasdaq Biotech Index (NBI) recently traded down more than 2.5% over the last year. Shares of leading biotech firms like Amgen (AMGN), Biogen (BIIB), Regeneron Pharmaceuticals (REGN), and Vertex Pharmaceuticals (VRTX) have struggled. So have Pfizer (PFE) and Merck (MRK). Even Lilly is down in 2025 despite the popularity of its obesity drugs.
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