Donald Trump signed an executive order that could impose tariffs of up to 100% on certain imported patented medicines, Bloomberg reported. The tariffs would apply if companies do not reach agreements with his administration in the coming months.
The White House said the levy covers patented drugs made in countries without tariff deals with the US, where companies also lack most-favoured-nation pricing agreements with the administration. Tariffs on products made by certain larger companies are due to start in 120 days, while products from smaller manufacturers would begin in 180 days.
How Tariffs Work
Tariffs are customs duties charged on imported goods or categories of imports. They are used to give domestic producers a price advantage over comparable imported products.
Tariffs are paid by importers at the port of entry, while taxes are paid at the time of purchase. Taxes apply to individuals and businesses, whereas tariffs are charged on imports.
In 2024, Mexico, China and Canada accounted for 42% of total US imports. Mexico was the top exporter at $466.6 billion, according to the US Census Bureau.
We are now seeing the effects of the executive order on patented drugs signed back in 2025. With the 180-day deadline for smaller manufacturers hitting this month, uncertainty is peaking. We’ve seen the Health Care Select Sector SPDR Fund (XLV) experience a 15% increase in implied volatility since the initial announcement, suggesting traders should consider strategies that profit from price swings.
Market Volatility And Trade Risk
The divergence between companies is becoming clear, creating opportunities for pairs trading using options. Data from the Commerce Department for Q1 2026 shows pharmaceutical imports from key European hubs like Ireland and Switzerland are already down 8%. In contrast, US-based contract manufacturing organizations have seen their stock prices rise by an average of 12% as they absorb new domestic orders.
The bigger risk is retaliation, which could broaden the impact beyond just the healthcare sector. We are looking at puts on broad market indices as a hedge in case this escalates into a wider trade dispute. The CBOE Volatility Index (VIX) has been holding stubbornly above 20, a notable shift from the calmer markets we saw in mid-2025 before this policy was enacted.
Looking back at the US-China trade war from our perspective in 2025, we saw how retaliatory tariffs quickly spread to unrelated sectors like agriculture. A similar response from the EU could easily happen in the coming weeks. This historical precedent supports the idea of preparing for unexpected volatility in seemingly safe industries.
