Rebuilding Resilience in U.S. Pharmaceutical Manufacturing

Commentary by Charles Wessner and Shruti Sharma

Published September 29, 2025

In May 2025, the Trump administration issued an executive order titled "Regulatory Relief to Promote Domestic Production of Critical Medicines" directing the Food and Drug Administration (FDA) and the Environmental Protection Agency (EPA) to streamline permitting and inspection processes for domestic pharmaceutical facilities. This directive builds on earlier efforts to strengthen the United States' biopharmaceutical base and reflects a broader push to ensure that public health, economic competitiveness, and national security are not undermined by overreliance on offshore production. Reflecting these concerns, increasing domestic pharmaceutical manufacturing has emerged as a bipartisan strategic priority. Within this broader policy shift, some advocates have proposed pharmaceutical tariffs as a possible tool to accelerate domestic production and reduce reliance on foreign sources. Supporters of pharmaceutical tariffs argue that such measures would incentivize drugmakers to expand U.S.-based operations, create high-skilled jobs, and reduce the risk of supply disruptions during global crises.

While these are laudable goals, this strategy does not recognize the realities of current pharmaceutical supply chains and the policies that support them. However well intentioned, tariffs along with recent executive orders will prove insufficient and potentially counterproductive as standalone solutions. Many brand-name drug manufacturers have already built globally diversified, resilient networks supported by robust inventory buffers and flexible manufacturing capacity. Given these investments, efforts to onshore the entire pharmaceutical supply chain may are not feasible in the near term and may not even be desirable, given the efficacy of global networks, particularly for brand-name drugs.

In the generic drug segment, there are more acute vulnerabilities where extreme cost pressures and concentrated sourcing, particularly from China and India, have created systemic supply chain risks. Imposing pharmaceutical tariffs could exacerbate these problems by disrupting the existing supply chains. The unintended consequences could be higher costs, delayed treatment availability, and increased drug shortages. These risks are especially pronounced for essential generics such as antibiotics, IV fluids, sterile injectables like epinephrine and heparin, and certain infused cancer therapies.

Distinct Risk Profiles in Innovative and Generic Medicine Supply Chains

The U.S. pharmaceutical ecosystem is bifurcated between innovative (brand-name) medicines and generic (and biosimilar) medicines, each with different supply chain structures and vulnerabilities. Generic drugs are equivalent to brand-name drugs in terms of dosage, strength, safety, quality, route of administration, performance characteristics and intended use.

Firms with robust research and development (R&D) produce innovative medicines and are heavily invested in global regulatory compliance, clinical trials, and robust manufacturing and distribution systems. Brand-name pharmaceutical firms have invested heavily over decades to ensure a reliable supply of innovative medicines through resilient, globally diversified supply chains. These efforts are supported by in-house manufacturing capabilities, robust risk management, and inventory strategies that include partnerships with multiple qualified suppliers across regions. Many of these operations are vertically integrated or rely on long-term relationships with specialized contract manufacturers, enabling redundancy and flexibility in sourcing active pharmaceutical ingredients (APIs), the biologically active components of a drug that produce the intended therapeutic effect; and excipients, inactive substances formulated alongside the API to aid in drug delivery, stability, or absorption, and packaging components. To further strengthen supply chain resilience and reduce reliance on external sources, these firms have also expanded domestic manufacturing and diversified raw material suppliers. Moreover, research-based biopharmaceutical companies also continue to manage supply chain risks through flexible business continuity strategies, including inventory buffers, geographically diverse production partnerships, and a mix of self-owned and contract manufacturing assets.

In contrast to these robust and diversified supply chains created by innovative drug manufacturers, the generic drug market operates under a very different set of economic and structural constraints. According to the Association of Accessible Medicines, generic medicines account for approximately 90 percent of prescriptions filled in the United States but represent only 13.1 percent of total drug spending due to their lower cost. Generic drug manufacturers, given their significant lower cost margins, are highly reliant on cost-competitive Chinese production for active pharmaceutical ingredients and India for significantly lower manufacturing costs.

Drivers of Domestic Manufacturing

The drive to expand pharmaceutical manufacturing in the United States is rooted in a convergence of public health, economic, and national security concerns.

• Supply Chain Disruptions During Covid-19: The Covid-19 pandemic highlighted critical gaps in the pharmaceutical supply chain, particularly for generic medicines. The FDA identified approximately 20 essential drugs that faced potential shortages due to global supply chain disruptions. In response, pharmaceutical firms and policymakers began reevaluating the resilience of their sourcing strategies. A survey by EY found that in the aftermath of Covid-19, many manufacturers planned to overhaul their supply chains, investing in automation, AI-based analytics, and supplier diversification to improve resilience.
• Geopolitical Risks and Strategic Dependencies: Beyond pandemic-related disruptions, long-term geopolitical risks, especially concerning China, have become a central driver of these efforts. China's 14th Five-Year Plan (2021-2025) (year-year) explicitly prioritized pharmaceutical manufacturing as a strategic industry. Local governments often subsidize API manufacturers that receive foreign regulatory approvals, such as from the U.S. FDA. More troubling, Chinese state-linked media and former officials have suggested using control over pharmaceutical exports as leverage during geopolitical disputes. These developments have sparked bipartisan concerns in Washington over the risk of strategic supply chain coercion.
• Economic Competitiveness and Domestic Industry Support: The biopharmaceutical industry is a critical pillar of the U.S. economy. It accounted for approximately 3.4 percent of U.S. GDP by 2022 and supports millions of high-wage jobs in research, production, and distribution. However, the industry has faced increasing competitive pressure from countries with more favorable tax environments, targeted subsidies, and more streamlined regulatory processes. Some analysts highlight subsidies and foreign pharmaceutical price controls, combined with wage differentials, that impact competitiveness and contribute to offshoring.

The Limitations of Tariffs

Many, if not most of these challenges cannot be met by the imposition of tariffs. At best tariffs are a blunt instrument, and in the pharmaceutical industry, these limitations and risks are manifest. As one study observes, "Tariffs imposed on branded, generic, and biosimilar finished products will have wide-ranging implications for health care, product availability, and consumers in the United States." The Budget Lab at Yale University projected that a 25 percent ad valorem tariff would increase medication costs by an "average of around $600 per year per household in the United States. Tariffs can also create supply chain disruptions, increase costs and limit patient access to essential medications, and negatively impact research and innovation." Limiting access and research on the next generation of treatments poses significant political and societal drawbacks.

Challenges to Expanding Pharmaceutical Manufacturing

Despite growing bipartisan support for increasing domestic pharmaceutical manufacturing, significant structural and market-based challenges continue to hinder large-scale efforts. These barriers affect both innovative and generic drug manufacturing and span across capital access, regulatory complexity, labor shortages, and commercial disincentives.

• Cost Pressures: Efforts to increase supply chain resilience-such as qualifying multiple vendors, diversifying sources, and stockpiling inventory-require significant capital and time. For many firms, particularly generics manufacturers operating on thin margins, these added costs, in addition to the time required to comply with FDA regulations, are prohibitive. While some large pharmaceutical companies are outsourcing non-core production to contract development and manufacturing organizations, the high capital costs, regulatory burdens, workforce gaps, and time required to build new facilities in the United States remain a barrier to substantial increases in U.S. investments.

• Regulatory Uncertainty and Policy Disincentives: Even as the federal government moves to reduce domestic regulatory burdens, expanding remains constrained by complex compliance requirements. Firms must navigate not only domestic regulations but also international standards to maintain access to global markets. Moreover, recent policy shifts have introduced commercial headwinds. The Inflation Reduction Act empowers Medicare to negotiate prices for certain drugs, especially small-molecule therapies, which now face price controls just nine years after approval. In contrast, several advanced economies offer more predictable and longer market exclusivity terms. For example, the European Union provides up to 10 years of data and market protection for new medicines, with an additional year for significant therapeutic innovations. For high-revenue therapy, an additional year of exclusivity means hundreds of millions of dollars in protected revenue. Japan offers stable pricing and a reimbursement environment that maintains drug prices for several years post-approval. These more positive policy frameworks may make other countries increasingly attractive for both R&D and advanced manufacturing investment, particularly for innovative or high-risk therapies.

  However, it is important to note that Europe and Japan do not invest in pharmaceutical research and ecosystem development at the same scale as the United States. The United States couples nearly $50 billion in annual National Institutes of Health funding with state and local initiatives that have created dense innovation hubs, anchored in leading universities and attracting global talent. Massachusetts alone has invested over $1 billion through its Life Sciences Initiative to support the Boston-Cambridge "Kendall Square commons," where universities, labs, and firms cluster. This layered support sustains the United States as the leading life sciences ecosystem, attracting investment from around the world, even as U.S. commercialization policies have become less favorable.

• Labor Shortages and Skills Gaps: Pharmaceutical manufacturing demands highly skilled labor in areas such as chemical engineering, quality control, and regulatory affairs. Yet the United States faces a growing shortfall in this talent pipeline. Deloitte projects that U.S. manufacturing will need about 3.8 million new workers by 2033, with as many as 1.9 millions of those jobs likely to go unfilled if current workforce gaps persist. According to industry surveys, 80 percent of pharmaceutical manufacturers report a mismatch between available workforce skills and evolving operational requirements. This shortage is particularly acute for advanced manufacturing roles, which support continuous processing, digital quality control, and AI integration. Without increased and sustained investment in science, technology, engineering, and mathematics (STEM) education, apprenticeships, technical training, and targeted foreign recruitment, workforce constraints will continue to limit U.S. capacity to onshore a greater proportion of pharmaceutical manufacturing.
• Geographic Concentration and Operational Risks: Even domestically, the industry faces risks from geographic concentration of key elements of U.S. manufacturing infrastructure. For example, in July 2023, an EF-3 tornado severely damaged Pfizer's sterile injectables facility in Rocky Mount, North Carolina, and in 2024, Hurricane Helene forced the temporary closure of Baxter's North Cove facility, a major producer of IV fluids. These incidents disrupted production of more than 30 critical generic drugs and emphasized the vulnerabilities of concentrated domestic capacity and raise the need for greater regional diversification and/or greater site resilience.
• Cooling Capital Markets and Investment Hesitancy: The capital markets offer another growing constraint on U.S. production. Post-pandemic, the decline in biomanufacturing investment has been sharp. According to GlobalData, venture funding for biopharmaceutical companies fell by 20 percent in Q1 2025 compared to the same period in 2024. Private equity activity in pharmaceutical supply chain services has also dropped by 15 percent annually since 2021. This investment pullback reflects relatively high interest rates, post-pandemic inflation, and the attraction of alternative investments such as AI. It also reflects investor risk aversion after the overheated valuations and funding surge of the pandemic era.

Globally, however, China is showing a resurgence in investments-its biotech firms are increasing their share of licensing deal value and attracting more venture capital investments-and though Europe remains behind the United States in overall investment levels, it is performing better than many other regions.

Long Term Strategies Beyond Manufacturing Plants

To address the complexities of pharma supply chains, a broader policy approach is emerging to build not only domestic plants but the ecosystem around pharmaceutical production, starting with a few key drugs. Industry groups such as the Association for Accessible Medicines have called for a targeted strategy centered on essential medicines, rather than all 40,000 FDA-approved drugs. Tax incentives, direct subsidies, and cooperative R&D facilities, combined with workforce development programs akin to elements of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, could offer paths that are more sustainable for strengthening the pharmaceutical drug manufacturing base in the U.S.

Perhaps most important is the need for a larger, better-trained skilled workforce. Skilled workers are a critical enabler for growth. Perhaps more than most other manufacturing sectors, pharmaceutical production demands specialized training in chemistry, quality control, and regulatory affairs. Federal support for STEM pipelines, advanced manufacturing apprenticeships, and partnerships with community colleges could help address this bottleneck. Action at the state level combined with company-level tax incentives for training along the German model are needed to effectively address this pressing need.

Technology-Driven Solutions for Resilient Manufacturing

Emerging technologies such as continuous manufacturing and AI-enabled process optimization offer long-term opportunities to reduce the cost and complexity and support increased U.S. production of certain API. Continuous manufacturing enables uninterrupted production flows, which can reduce facility size, energy use, and material waste while allowing for more flexible production volumes. Modular or container-based facilities offer additional potential by enabling scalable, distributed manufacturing closer to end-use markets. Moreover, AI-driven process analytical technologies and real-time monitoring systems also promise enhanced quality assurance and optimized manufacturing performance. Yet successful integration requires sustained collaboration between industry and regulators, along with long-term planning and infrastructure investments.

Despite these advantages, widespread adoption of these innovations remains limited by significant capital requirements. Transitioning from traditional batch to continuous processes demands investment in specialized equipment, process control systems, and workforce training. Additionally, manufacturers face regulatory uncertainty, as existing guidelines are not fully adapted to evaluating equivalence between batch and continuous production methods.

Furthermore, while recent U.S. executive orders seek to reduce domestic regulatory burdens, particularly around environmental permitting, firms must still meet global regulatory standards to maintain global market access. This dual requirement acts to sustain a high baseline of regulatory complexity and cost regardless of location.

Conclusion

Tariffs and the recent executive orders aimed at expanding U.S. pharmaceutical manufacturing are insufficient on their own to address some of the key challenges facing U.S. manufacturers in regulation, permitting delays, talent development, and the need for greater locational and tax incentives. Indeed, in the current policy context and given the realities of the global supply chain network, deploying tariffs to onshore all aspects of the pharmaceutical supply chain to the United States is infeasible. For the immediate future, efforts to pursue greater onshoring may well be counterproductive given the role and value of globally diverse and resilient supply chains in avoiding supply chain disruptions.

A longer-term, more structural approach is needed. Such an approach should prioritize proven policy tools-such as training programs, focused talent recruitment abroad, and reduced regulatory burdens, backed by targeted subsidies and tax incentives rather than relying on potentially transient tariffs. These measures are likely to achieve the intended goals more effectively and sustainably, while avoiding the harmful side effects associated with tariffs. Moreover, given the reality of wage differentials, policymakers should consider increased federal R&D investments and greater incentives to support U.S. based manufacturing and combine this with greater incentives to develop and deploy new advanced manufacturing technologies. Together, these measures can reduce costs and create greater efficiencies while expanding the necessary specialized workforce.

Despite very real challenges, the United States retains a major lead in the discovery, development, and commercialization of life enhancing pharmaceutical products. The U.S. pharmaceutical ecosystem is complex, and unvetted policy changes risk being disruptive and counterproductive. What is needed a patient, long-term effort of investment and support for companies and workforce development that could achieve the goal of greater reshoring while providing significant health benefits both for the United States and the rest of the world.

Charles Wessner is a senior advisor (non-resident) for the Renewing American Innovation program at the Center for Strategic and International Studies (CSIS). Shruti Sharma is an intern for Renewing American Innovation at CSIS.

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