US and UK agree zero tariffs deal on pharmaceuticals

The UK and the US have agreed a deal to keep tariffs on UK pharmaceutical shipments into America at zero.

Under the agreement the UK will pay more for medicines through the NHS in return for a guarantee that US import taxes on pharmaceuticals made in the UK will remain at zero for three years.

The deal comes after US President Donald Trump threatened to raise tariffs to as high as 100% on branded drug imports.

Pharmaceuticals are one of the UK’s biggest exports to the US, which is also the biggest market by far for big UK drugmakers including GSK and AstraZeneca.

Earlier this year, US president Donald Trump announced massive increases to taxes on goods imported to the country, which he argued would create jobs and boost American manufacturing.

The White House exempted pharmaceuticals from that round of tariffs, and later signed a deal with the UK to remove some trade barriers between the countries and reduce levies on most goods exported to the US to 10%. But pharmaceuticals remained a big unknown.

The White House has repeatedly threatened to raise tariffs on medicines, citing concerns about the country’s reliance on medicines made overseas.

Trump has also argued that US consumers effectively subsidise medicines for other developed countries by paying premium prices for those drugs, pushing for other countries to pay more.

White House spokesman Kush Desai said the agreement with the UK was a “historic step towards ensuring that other developed countries finally pay their fair share”.

Under the terms set out on Monday, the UK will increase the price threshold at which it deems new treatments to be too expensive by 25%.

The UK will also increase the overall amount the NHS spends on medicines, with a target to increase that spending from 0.3% of GDP to 0.6% of GDP over the next 10 years.

The amount drug companies must pay back to the NHS to ensure the health system does not overspend its allocated budget will be capped at 15% – last year, drug companies had to pay back more than 20%.

In exchange, UK medicine exports will be protected from tariff increases for the next three years.

Business and Trade Secretary Peter Kyle said the deal “guarantees that UK pharmaceutical exports – worth at least £5bn a year – will enter the US tariff free, protecting jobs, boosting investment and paving the way for the UK to become a global hub for life sciences.”

In the 12 months to the end of September, the UK exported £11.1bn worth of medicines to the US, making up 17.4% of all goods exports in that period, according to the Department for Business and Trade.

The pressure from the US had intensified a long-running row between the industry and UK government over spending levels and approval rates.

Health Secretary Wes Streeting said in August that he was not prepared to let drug companies “rip off” the UK, after talks between the government and pharmaceutical firms over the cost of medicines broke down.

But subsequently Science Minister Sir Patrick Vallance told the BBC he accepted that the NHS needed to spend more on medicines after seeing its spending on drugs shrink as a percentage of its budget over the last 10 years.

Meanwhile, several large pharma investments in the UK have been paused or cancelled over the last 18 months while both GSK and AstraZeneca have recently announced multi-billion-dollar investments in the US.

In mid-September, British pharmaceutical giant GSK pledged to invest $30bn (£22bn) in research and manufacturing in the US over the next five years.

A week before GSK’s US investment announcement, US pharmaceutical company Merck – which is called MSD in Europe – revealed it was scrapping its planned £1bn expansion of its UK operations.

Shortly after, AstraZeneca also announced it was pausing a planned £200m investment in a Cambridge research facility. In July, AstraZeneca said it would invest $50bn on medicine manufacturing and research and development in the US.

William Bain, head of trade policy at the British Chambers of Commerce, said he was pleased to see that the protections from US tariffs that UK officials had promised earlier this year had been delivered.

“This deal is a real win. It will promote exports, boost investment, and enhance UK competitiveness as a production and innovation base for world-leading medicines and treatments,” he said.

The White House had launched a formal investigation into pharmaceutical imports and their effect on national security in April, taking the first step towards tariffs.

In September in a Truth Social post, Trump threatened to raise tariffs on branded drugs – a small subset of the medicine that the US imports – to 100%, but the White House did not put the plan into effect, citing negotiations with manufacturers.

In announcing the new agreement, the UK government said it was the only country in the world to have secured a zero percent tariff rate for pharmaceutical shipments.

European officials have previously said they believed their exports would be protected by terms agreed over the summer, which would cap tariffs at 15%.

US Health Secretary Robert Kennedy Jr said Americans “should not pay the world’s highest drug costs for medicines they helped fund”.

“This agreement with the United Kingdom strengthens the global environment for innovative medicines and brings long-overdue balance to U.S.–U.K. pharmaceutical trade,” he said in a statement.