The Trump administration has other legal avenues to impose tariffs on pharmaceuticals despite today’s Supreme Court decision striking down many of the administration’s current tariffs.
In a 6-3 decision, the court ruled that President Donald Trump did not have the authority to impose tariffs under a 1977 law, the International Emergency Economic Powers Act. But at a White House press conference this afternoon, Trump said there were numerous other statutes and authorities that give the president the power to impose tariffs. He cited Sections 122 and 301 of the Trade Act of 1974; Section 232 of the Trade Expansion Act of 1962; and Section 338 of the Tariff Act of 1930, commonly referred to as the Smoot-Hawley Tariff Act. He also announced that he would impose a broad tariff of 10% under Section 122 of the Trade Act of 1974, effectively replacing tariffs he imposed under the international emergency law that the court struck down.
“The Supreme Court did not overrule tariffs. They merely overruled a particular use of IEEPA tariffs,” Trump said during the press conference, using the acronym for International Emergency Economic Powers Act.
The pharmaceutical industry has largely fended off the administration’s tariff policy by agreeing to sell drugs directly to cash-paying consumers at discounted prices, deals that have been aggregated on the administration’s TrumpRx website. Large manufacturers have also agreed to large investments in domestic manufacturing that cumulatively are in the hundreds of billions of dollars.
Industry observers said that today’s Supreme Court ruling, the first major legal setback for the Trump administration, is not likely to upset the existing deals that the drugmakers have made with the administration, partly because the administration still has leverage with the threat of tariffs under other laws.
Lindsay Greenleaf, J.D., MBA, head of policy, research and analysis at ADVI Health and a member of the Managed Healthcare Executive (MHE) editorial board, also noted the limited scope of the court ruling to presidential authority to impose tariffs under the International Emergency Economic Powers Act. It did not touch upon tariffs that might be imposed under Section 232 of the 1962 trade expansion law, she said.
Greenleaf said the administration has threatened drugmakers with Section 232, sector-specific tariffs if they do not voluntarily implement “most favored nation” pricing for prescriptions. Most favored nation pricing is a Trump administration policy with the goal of making prices for prescription drugs in the U.S. comparable to those paid in Europe and in countries elsewhere with roughly the same level of economic development as the U.S.
More Section 232 tariffs may be on the way, Greenleaf said. “Politically, the Trump administration may now have new motivation to move forward with Section 232 or other tariffs to compensate for today’s loss in court.”
According to the Council on Foreign Relations, Section 232 authorizes the president to impose quotas or tariffs on imported goods that are deemed as a threat to U.S. national security based on an investigation and recommendations by the secretary of commerce, a post currently held by Howard Lutnick. Unlike the International Emergency Economic Powers Act tariffs that the court struck down and the Section 122 tariffs, the Section 232 tariffs must be applied sector by sector, not broadly on all imports. Trump’s tariffs on cars, copper, lumber and other fairly specific goods have been applied under Section 232.
The Section 122 tariff that Trump announced has a time limit of 150 days unless it is extended by Congress, according to the Council on Foreign Relations.
Trump was defiant at an afternoon press conference. He said that he had other “methods, practices, statutes, and authorities” available to him to impose tariffs, listing the specific statutes later when he appeared to return to prepared remarks.
“Foreign countries that have been ripping us off for years are ecstatic. They are so happy. They are dancing in the streets. But they won’t be dancing in the streets for long, that I can assure you,” Trump said.
Without citing evidence, he said the court was swayed by foreign interests. Chief Justice John Roberts wrote the majority opinion. The three liberal justices—Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson —- and two justices appointed by Trump — Amy Coney Barrett and Neil Gorsuch — joined Roberts in the majority. Trump declined to say he regretted appointing Barrett and Gorsuch in response to a reporter’s question, but he added about Barrett and Gorsuch, “I think it is an embarrassment to their families, if you want to know the truth, the two of them,” he added.
Less uncertainty, perhaps
Mariana Socal, M.D., Ph.D., M.P.P., M.Sc., an associate professor at Johns Hopkins Bloomberg School of Public Health, noted, as others did, that the administration has used Section 232 to justify the possibility of tariffs on pharmaceuticals and that law could be used to justify future tariffs. Socal said it was important to recognize that the U.S. is a signatory to the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which governs international property rights, including patents on drugs. Socal said the TRIPS agreement forbids tariffs on pharmaceuticals out of recognition that tariffs could raise costs and reduce access to a good that is important to public health.
Another point made by Socal is that although incentivizing domestic manufacturing is one of the rationales for the administration’s tariffs, domestic producers of drugs depend on imported ingredients. Tariffs on pharmaceuticals could, therefore, mean that domestic manufacturers currently face higher production costs. Although there are avenues for the administration to continue to pursue tariffs on pharmaceuticals, with today’s court decision, the administration may have a good rationale to stop tariffs on pharmaceuticals and keep protecting the manufacturing capacity that we currently have, she said.
Socal said one of the key characteristics of the Trump administration’s tariff policies has been uncertainty with dates announced and then delays as the dates approach or changes in the rates. “This absolute uncertainty surrounding these tariffs has really been an issue for pharmaceutical manufacturers,” she said.
Socal continued, “We’ve seen behavior like manufacturers accelerating importation to beat the tariff start date, and then we have a postponement of the tariff start date. So even if, in some cases, tariffs may not have been fully implemented as announced, their effects have been present.”
Today’s Supreme Court ruling could bring some clarity to tariff policy by putting the power to set them back on Congress, she said. Slower-moving congressional action would give the pharmaceutical industry time to prepare “as opposed to this back and forth and this lack of clarity that we have had historically for well over a year.”
