The pharmaceutical Contract Development and Manufacturing Organization (CDMO) industry operates at the intersection of global supply chains, regulatory frameworks, and economic policy. As of March 2025, the introduction of new tariffs by the U.S. administration has significantly altered the operational landscape for CDMOs. These tariffs, targeting major trading partners like China, Canada, Mexico, and the European Union, are disrupting the intricate network of raw material sourcing, manufacturing processes, and cost structures that define the sector giving rise to uncertainty that may adversely affect costs and availability.

Background: The Tariff Landscape

In early 2025, the U.S. administration under President Donald Trump rolled out a series of aggressive tariff policies. Here’s a snapshot of the key measures:

• China: A 10% tariff on all imports effective February 4, 2025, increased by an additional 10% on March 4, 2025, totaling 20%.
• Canada and Mexico: A 25% tariff on goods (with limited USMCA exceptions) effective March 4, 2025; energy products from Canada face a 10% rate.
• Steel and Aluminum: A 25% tariff on imports from major exporters, implemented March 12, 2025.
• European Union: A 25% tariff on all goods, set for April 2, 2025, with specific sectors like pharmaceuticals and automotive targeted.

These policies, enacted under the International Emergency Economic Powers Act (IEEPA) and Section 232 of the Trade Expansion Act, aim to bolster domestic manufacturing. However, they pose significant challenges for industries like CDMOs that rely on global inputs.

Impact on API and Raw Material Supply Chains

CDMOs heavily depend on a global supply chain for APIs, excipients, and intermediates, with China playing a dominant role. In 2023, China produced roughly 40% of the world’s APIs, supplying critical components for Commercial New drugs and generics drugs both small molecule and biologics. The 20% tariff on Chinese imports directly hikes the cost of these materials. For example, a small-molecule API like ibuprofen, previously costing $50 per kilogram, now incurs an additional $10 per kilogram—a 20% increase. For a CDMO producing millions of doses annually, this significantly impacts raw material budgets and the cost of goods (COGS) for the final drug product impacting the consumer.

The tariffs on Canada and Mexico add further complexity:

• Canada: Supplies pharmaceutical-grade chemicals like sodium bicarbonate, used in effervescent formulations. The 25% tariff raises costs, with limited USMCA relief.
• Mexico: Provides glass vials and pre-filled syringes for injectables. A $0.05 to $0.10 per-unit increase scales rapidly for runs in the millions of units.

Additionally, the 25% tariff on steel and aluminum, effective March 12, 2025, affects bioprocessing equipment (e.g., bioreactors) and packaging (e.g., blister packs). A 2,000-liter bioreactor costing $500,000 could see a $50,000 to $75,000 increase, impacting capital budgets and depreciation schedules.

Effects of the Tariffs on Biologics and Advanced Therapies

The biologics sector—covering monoclonal antibodies (mAbs), gene therapies, and cell-based modalities—is especially sensitive to tariff disruptions. Production relies on single-use systems (SUS) like bioreactors, media, and filtration units, often incorporating Chinese-sourced polymers. The 20% tariff on these inputs could raise COGS by 5-10% for a 500-kilogram mAb batch. Tariffs on Canada and Mexico also hit critical infrastructure:

• Canada: Supplies filtration units for water-for-injection (WFI) systems, adding $100,000-$200,000 annually to cGMP costs for a mid-sized facility.
• Mexico: Provides cold-chain logistics components, increasing costs for biologics stability.

For advanced therapies like CAR-T, the stakes are higher. Specialized reagents like viral vectors face tariff-driven price hikes and JIT supply risks. A $50,000 batch delayed by customs could become unusable, disrupting timelines and incurring penalties.

Cost Escalation and Pricing Pressure Due to the Tariffs

The tariffs collectively drive up COGS across CDMO operations. Consider a generic small-molecule drug with a pre-tariff COGS of $1.00 per unit:

• API: Rises from $0.40 to $0.48 (20% increase).
• Packaging: Increases from $0.30 to $0.375 (25% on steel/aluminum).
• Overhead: Climbs from $0.30 to $0.33 (10% equipment cost rise).

The new COGS is $1.185—an 18.5% jump. For 50 million units, this adds $9.25 million annually. Fixed-price contracts force CDMOs to absorb this, eroding 10-15% margins, while cost-plus deals face sponsor pushback. In biologics, a 5% SUS cost increase for a 500-kilogram mAb batch adds $250,000-$500,000, challenging efficiency gains like titer optimization (e.g., 5 g/L to 6 g/L).

Regulatory and Compliance Considerations

Tariffs intersect with regulatory demands, adding complexity. The FDA’s 21 CFR Part 211 requires supplier revalidation when shifting from tariffed sources—a 6-12 month, $500,000-$1 million process per API. This risks shortages, especially for drugs already on the FDA’s 2024 shortage list. Equipment tariffs also hit QC labs; a $100,000 HPLC system from the EU now costs $125,000, straining budgets for cGMP compliance.

Strategic Adaptations and Industry Response

CDMOs are adapting through multiple strategies:

• Supply Chain Diversification: Exploring India (20% of global generics), though its reliance on Chinese intermediates (80%) limits relief.
• Balancing Resilience vs. efficiency: Trade-off as increased resilience reduces efficiency and increase efficiency reduces resilience. Find the fight ballende by building efficiency where there is stability in the supply chain and build resilience where you have instability
• Build flexibility without sacrificing profitability: Modular operation and process for product design allows for customization and flexibile manufacturing systems that can be switched between products with minimal down time
• Domestic Capacity: Leveraging the CHIPS and Science Act, a $200 million U.S. biologics plant could offset $10 million in tariff costs over a decade.
• Contract Renegotiation: Adding tariff-escalation clauses or negotiating 50:50 cost-sharing with sponsors.
• Operational Efficiency: Continuous manufacturing for small molecules cuts material use by 20-30%, while perfusion systems for biologics boost yields by 50%.

These adaptations require time and capital—$5-10 million and 18-24 months per line—testing short-term resilience.

Economic and Competitive Implications of the New Tariffs

The tariffs reshape competition. Large CDMOs like Lonza can shift production to Switzerland or Singapore, while smaller firms risk margins dropping from 22% to 10-12%, spurring consolidation. Globally, sponsors may turn to EU or Asia-Pacific CDMOs with lower tariff exposure, where costs are 10-15% cheaper pre-tariff.

Long-Term Outlook

If tariffs persist beyond 2026, U.S. CDMOs could become a high-cost hub amid retaliatory measures (e.g., China’s 15% tariff on U.S. exports, Canada’s 25% surtax). A Q4 2025 resolution could mitigate damage, but prolonged uncertainty demands a 2-3 year strategy balancing survival and growth.

Conclusion

The 2025 tariffs challenge CDMOs with supply chain disruptions, cost hikes, and strategic imperatives. From APIs to biologics, the technical and economic impacts are profound. Large players may thrive through scale, but smaller CDMOs face risks. With global pharmaceutical spending nearing $2 trillion by 2028, the industry’s response to tariffs will shape its future in delivering affordable medicines.

Sources

1. Tax Foundation: Economic Impact of Trump Tariffs, March 26, 2025.
2. JAGGAER: Impact of Tariffs on American Manufacturing, January 29, 2025.
3. Economic Policy Institute: Tariffs—Everything You Need to Know, February 9, 2025.
4. Grant Thornton: A New Tariff Paradigm, March 18, 2025.
5. Darden Report: Q&A on Tariffs, February 4, 2025.
6. J.P. Morgan Private Bank: Tariffs on the Rise, January 14, 2025.
7. The White House: Fact Sheet on Section 232 Tariffs, February 11, 2025.
8. CLA: Comprehensive Analysis of Trump’s Tariffs, March 12, 2025.
9. Reuters: Expanded Metals Tariffs, March 11, 2025.
10. Dodge Construction Network: Tariffs and Construction, March 14, 2025.