The biopharma outsourcing sector has proven surprisingly resilient to international tariffs. Instead of absorbing costs, well-funded European companies are bypassing tariffs altogether by investing in and building new production facilities directly on U.S. soil, effectively onshoring their manufacturing.
Related Insights
The reshoring trend isn't about replicating traditional manufacturing. Instead, the U.S. gains a competitive advantage by leveraging automation and robotics, effectively trading labor costs for electricity costs. This strategy directly challenges global regions that rely on exporting cheap human labor.
Instead of immediately passing tariff costs to consumers, US corporations are initially absorbing the shock. They are mitigating the impact by reducing labor costs and accepting lower profitability, which explains the lag between tariff implementation and broad consumer inflation.
The U.S. industrial strategy isn't pure "reshoring" but "friend-shoring." The goal is to build a global supply chain that excludes China, not to bring all production home. This creates massive investment opportunities in allied countries like Mexico, Vietnam, Korea, and Japan, which are beneficiaries of this geopolitical realignment.
Because U.S. tariff levels are likely to remain stable regardless of legal challenges, the more critical factor for the long-term outlook is how companies adapt. Investors should focus on corporate responses in capital spending and supply chain adjustments rather than the tariff levels themselves.
A flat tariff on imports makes complex manufacturing with numerous cross-border steps prohibitively expensive. It becomes cheaper to move domestic production steps out of the tariff zone and import the finished good only once, leading to the deindustrialization of high-skilled jobs.
To overcome production bottlenecks, Legend Biotech employs a diversified manufacturing strategy. They operate their own large facilities in the US and Belgium while also contracting with pharmaceutical giant Novartis to produce their CAR T therapy. This enables a rapid scale-up to a planned 10,000 annual doses.
Geopolitical shifts mean a company's country of origin heavily influences its market access and tariff burdens. This "corporate nationality" creates an uneven playing field, where a business's location can instantly become a massive advantage or liability compared to competitors.
Despite significant US tariffs hitting labor-intensive goods, China's overall export volume remains strong. This resilience stems from a structural shift towards high-tech sectors like semiconductors and autos, combined with strategically rerouting trade through intermediary ASEAN countries to circumvent direct tariffs.
Despite US-China tensions threatening innovation, the likely outcome is 'coopetition'—a blend of competition and collaboration—as global pharmaceutical firms navigate the dual imperatives of advancing innovation and ensuring supply chain resilience.
Tariffs on foreign steel don't simply allow buyers to switch to domestic suppliers. A manufacturer of oil industry parts explained that most domestic mills aren't geared for their specific needs or quality requirements (e.g., heat treating). This reveals how tariffs create complex availability and quality challenges, not just simple price increases.
