Why Australia is right to put affordable medicine ahead of beating US pharmaceutical tariffs

From July 31, the United States will impose up to 100% tariffs on pharmaceuticals coming into the US. Some Australian-made exports look set to pay that highest rate, while some other countries – including the UK, Japan and the European Union – have negotiated lower rates.

The new US tariffs are not specific to Australian-made products. However, the US pharmaceutical industry has long called for tougher tariffs on Australia because of the Pharmaceutical Benefits Scheme (PBS), a subsidised scheme that supports cheaper medicines for Australians.

Following the announcement of the new tariffs, Health Minister Mark Butler said Australia’s position hasn’t changed, promising:

this will not impact drug prices for Australian consumers […] There will be no negotiation around the PBS under an Albanese government.

What could these new tariffs mean for affordable medicine in Australia? And is there anything Australia could offer to get a better deal?

How the tariffs will apply

US President Donald Trump first threatened to bring in pharmaceutical tariffs of up to 200% last year.

These sector-specific tariffs are separate from last year’s “Liberation Day” tariffs, which have been ruled unlawful by the US Supreme Court.

The pharmaceutical tariffs have been introduced under section 232 of the US Trade Expansion Act, used for other products such as steel and aluminium. These tariffs are legal and can apply indefinitely.

Starting from July 31, the US will:

1. impose a 100% duty on the total value of some import pharmaceuticals
2. but with some exceptions, set to pay only zero, 15% or 20% duties.

Broadly speaking, essential and generic medicines will pay zero tariffs.

Companies can receive a discounted 20% tariff for four years if they offer the US competitive pricing and commit to manufacturing in the US.

Products from trading partners Japan, the EU, South Korea, Switzerland and Liechtenstein will be charged a 15% tariff.

The UK has struck what might appear to be the best deal for zero-tariff access for UK-made medicines to the US for three years. But the UK got that deal by agreeing to pay more for medicines – which some warn could cost the UK’s National Health System more than it saves.

Most Australian exporters won’t pay 100%

The US is Australia’s biggest pharmaceutical export market, worth around A$2.1 billion in 2024.

Most of those exports (87%) are blood plasma products, an essential medicine that’s exempt from the incoming tariffs, mainly from manufacturing giant CSL.

CSL has said it expects most of its products to be exempt from the 100% tariff. Smaller medicines maker Mesoblast manufactures in the US, so is also exempt.

That leaves only a fraction of smaller Australian pharmaceutical makers set to pay the 100% tariff.

The PBS saves Australians hundreds a year

The federal government has promised to try for a better deal. So what concessions might the US ask for?

The US pharmaceutical industry has long pushed for changes to Australia’s PBS, which forces them to negotiate on prices with just one buyer: the Australian government. The industry says the scheme “undermines American competitiveness, jobs and exports”.

But the scheme makes a big difference for Australians needing affordable medicines. No matter the cost of the medicine, under the PBS Australians pay a maximum of A$25 per script (or $7.70 for concession card holders).

In 2023, an average of 13 PBS-funded prescriptions were dispensed per person over the year.

On average, that government funding saved individuals around $641 per person for the year. For people living in lower socioeconomic areas, that personal saving was even greater: $714 per person.

Read more: Australia’s PBS means consumers pay less for expensive medicines. Here’s how this system works

What the tariffs mean for prices in Australia and the US

Assuming the Albanese government sticks to its position – keeping the PBS out of negotiations over the pharmaceutical tariffs – medicine prices in Australia should not change after July 31.

In fact, the maximum cost of PBS-listed medicines has actually fallen since the start of 2026.

Instead, the US tariffs are likely to raise the cost of medicines for Americans. Looking at who had paid the price of previous Trump tariffs on imports into the US, Federal Reserve Bank of New York economists recently found “nearly 90% of the tariffs’ economic burden fell on US firms and consumers”.

What could Australia offer for a better deal?

Until now, Australia has done better than many countries with Trump’s tariffs.

It may seem tempting to match the UK’s zero-tariff deal. But on balance, protecting affordable medicines for Australians is worth far more than a deal for a small number of exporters.

However, there could be one avenue for offering to work on the PBS, which could also offer a win for Australians in getting faster access to new medicines.

National industry body Medicines Australia has urged the federal government to streamline how soon drugs that are officially approved are made available under the PBS. In 2016-2021, Medicines Australia says that time blew out to 466 days.

A 2024 government review backed the need to speed up the PBS listing process.

The speed of Australian medicine approvals is only one of the US industry’s complaints about the PBS, so it’s not a major bargaining chip.

But it could be worth offering as a win for US companies exporting to Australia, all while keeping bigger changes to the PBS firmly off the negotiating table.