Prelude to Tariff Hikes? Trump Administration Launches Section 232 Investigations into Pharmaceuticals and Semiconductors

The US government disclosed on Monday that it has initiated investigations into the impact of imported pharmaceuticals and semiconductors on national security. This is widely seen as a prelude to imposing tariffs on prescription drugs and semiconductors, potentially escalating the trade war initiated by the US. The US Department of Commerce stated in two separate notices that it has begun investigating the impact of imports of "semiconductors and semiconductor manufacturing equipment" and "pharmaceuticals and pharmaceutical ingredients, including finished pharmaceutical products" on US national security. These investigations, known as "Section 232 investigations," began on April 1, the day before President Trump announced the imposition of "reciprocal tariffs" on all imported goods, with pharmaceuticals specifically exempted. The "Section 232 investigation" refers to the authority granted to the US Department of Commerce under Section 232 of the Trade Expansion Act of 1962 to investigate whether imports of specific products pose a threat to US national security. This investigation allows the US President to restrict imports of products deemed to threaten national security. According to the law, the Secretary of Commerce is required to submit the investigation results within 270 days, but President Trump and other officials have indicated that these efforts may conclude sooner. The investigation on pharmaceuticals will cover all pharmaceutical imports, including finished generic and brand-name drugs, as well as ingredients used to produce these drugs. Investigators will also examine the importation of critical pharmaceutical ingredients. The investigation will address specific issues, including current and projected US demand for pharmaceuticals and pharmaceutical ingredients; the role of foreign supply chains, particularly those of major exporters, in meeting US pharmaceutical needs; the concentration of imports among a few suppliers and associated risks; and the feasibility of increasing domestic pharmaceutical and raw material capacity. Trump stated last week that he will impose "hefty tariffs" on prescription drug imports in the coming weeks. He believes that the US is a huge market, often paying many times more for drugs than countries with drug production, and that imposing tariffs on drugs will encourage pharmaceutical companies to open factories in the US. Trump's threat to impose tariffs on pharmaceuticals has unsettled the pharmaceutical industry. Experts warn that this plan could disrupt global supply chains. In addition to price increases due to tariffs, they are concerned about generic drug manufacturers exiting the market, which would exacerbate existing drug shortages. The US Department of Commerce's investigation on semiconductors is broad in scope and will assess the importation of both traditional and cutting-edge chips. According to a government announcement, the investigation will cover the importation of all semiconductors, as well as equipment used to manufacture these semiconductors, and electronic products containing these components. The US Customs and Border Protection (CBP) issued updated tariff rules last Friday, exempting import tariffs on categories including automatic data processors, computers, communication equipment, displays and modules, and semiconductor-related goods, unaffected by "reciprocal tariffs." However, Trump stated on social media last Sunday that the US government has not announced any tariff "exemptions," and the related products have merely been moved to another tariff category. Trump believes that imposing tariffs on electronic chips will force companies to relocate factories to the US. US Commerce Secretary Lutnick also stated last Sunday that while smartphones, computers, and other electronic products are not subject to "reciprocal tariffs," they will be included in semiconductor tariffs, which may be introduced in one or two months. Section 232 investigations are often used by the US as a tool for implementing trade protectionism, imposing additional tariffs on imported products under the guise of "national security." In March of this year, Trump also initiated Section 232 investigations targeting the copper and timber industries. He has already used Section 232 investigations to impose tariffs on imported steel, aluminum, and automobiles.