Can APAC Pharma Survive Trump?

Trump walks in the direction of the conservative American thought that believes free trade – coupled with immigration, outsourcing or treaties with countries – must be renegotiated on American terms. This would create ripple effects that would hit the pharmaceutical market throughout the Asia-Pacific region when Trump decides to implement his 15 point agenda of his election manifesto, particularly a massive reduction of corporate tax rate in the USA from 35% to 15% to tempt American corporate to head back home, curtailing Chinese trade, cutting down immigration, boosting GDP growth to 4% by adding 25 million jobs, curbing immigration from countries that export terror, and providing affordable health care to Americans instead of Obamacare.

The election of Trump and his trade protectionism may signal the end of the U.S.-led Trans-Pacific Partnership Agreement (TPPA) that the Obama Administration had prioritized as part of his “pivot to Asia”. Trump’s isolationism rhetoric and the USA still not ratifying the pact may severe the economic ties with Asia Pacific. Participating Asian countries under the membership of TPPA grants favorable access to a number of new trade partners. Even with the TPPA deal, other Asian countries, including China, which was excluded from the TPPA, produced an alternative trade arrangement known as the Regional Comprehensive Economic Partnership (RCEP). If the Trump administration decides to forego the TPPA, as Trump suggested in his election campaign, Asia will pursue RCEP instead – which would be “a good option for countries that rely heavily on free trade, including Australia, Singapore and Japan”, according to Song Hong, a fellow at the Chinese Academy of Social Sciences. The end of TPPA and the ultimate pursue of RCEP might shift geopolitically towards a Sinocentric presence in Asia Pacific, bringing China to become the region’s economic leader with the upper hand to economic benefits and in dictating policy.

Trade agreements are far more important in the pharmaceutical industry than in many other industries, as they’re not just about the flow of goods, but about the technical regulation conformity, intellectual property protections, and promotion of transparency of pharma products and medical devices too. Therefore, some of the fastest-growing pharma markets in the world covered by the TPPA would back the trade deals partly because it would strengthen patents and regulations in countries where protections are weaker than they are in the USA. However, in a public health point of view as shared by Doctors Without Borders/Médecins Sans Frontières, the full pursuit RCEP in the event of TPPA abolishment would affect the availability of affordable generic drugs manufactured in India as the proposed text on intellectual rights that extends monopoly protection is predicted to restrict generic competition and make medicine prices unaffordable for millions in the developing countries who need them.

The president-elect Trump has accused China of “using the USA as a piggy bank to rebuild China” by subsidizing their industry and lowering prices of its export by manipulating the currency. Trump has then given the idea of imposing a punitive tariff of 45% on Chinese imports. Theoretically, imposing tariffs and encourages export and discourages imports in the USA, which gives companies the incentives to make their products in-country and for consumption in-country. Kevin Lai, chief economist for Asia at Daiwa Capital Markets shared that the 45% tariff would lead to an annual 87% decline in Chinese exports to the USA and a 4.82% loss of GDP. This dampening of the economic growth in the world’s second-largest economy would detriment the mostly emerging nation in Asia Pacific that’s still dependent on exports as its primary source of growth. Trump’s plan to curtail Chinese trade, especially on a $20 billion worth of pharma imports could potentially pass the pharma import baton to the other pharmaceutical frontrunner, India.

India is the second biggest exporter of pharmaceutical materials to the USA. According to US Census Bureau data, India’s pharma exports to the USA were $31 billion during the initiation of Obamacare in 2010, and have since doubled to $66 billion. If Trump implements his promise to slash Obamacare, Indian drug companies could be severely hit. However, the pharmaceutical industry insiders were not alarmed by Trump’s presidency, despite the initial slump in the stock market in regards to India’s pharmaceutical companies. India’s strength is in manufacturing affordable generic drugs and the USA healthcare sector’s reliance on generics would continue as it is to their best interest to lower costs. Hence, no negative impact is expected in the pharma sector in India. Consequently, if Trump incentivizes manufacturing of drugs in the USA from his corporate tax rate reduction manifesto, Indian pharma companies that have a manufacturing presence in the USA like Sun Pharmaceutical Industries and Dr. Reddy’s Laboratories would gain the benefit.

Japan is the second largest pharmaceutical market in the world after the United States, whereby the market is sizeable up to $150 billion. The Japanese took advantage of the TPPA for access to more developed markets in the effort to revive Japan’s manufacturing base, which has lost ground to China. Trump’s proposed cut of TPPA upon his victory resonated to major pharma stocks like Takeda Pharmaceutical Co. Ltd. and Daiichi Sankyo Co. Ltd. which reportedly closed down lower and rebounded back on the same period. This is indicative of Japan’s pharma market vulnerability that depends on the situation in the USA healthcare system – whereby in some cases, the Japanese pharma market relies 50% on the USA market. On a lighter note, Takeda president and CEO Christopher Weber believed that the USA would uphold the fundamentals of being pro-innovation and rewards innovation, despite the uncertain cost and affordability of the healthcare system now that Trump is in the new seat.

The pharmaceutical market in South East Asia is enjoying a double-digit boom since 2011, and is estimated to increase at a compound annual growth rate of 13.4% through 2020, as published by Kline. The growth of the pharma industry in this region is attributable to the growing population, increase in government’s involvement in healthcare, emerging health insurance industry, and the increase in the prevalence of chronic disease. However, South East Asian countries are lagging behind in the domestic manufacturing industry in pharmaceuticals and these leads to their heavy dependence on imports for pharmaceutical raw materials. As India and China are the main suppliers of the raw materials to these regions, it is safe to say that South East Asia’s pharma market would be at the receiving end of the economic chain reaction initiated from the India and China’s market influence. But the alleged shift to RCEP should the TPPA be cut would be a relief for some countries in the region, such as Vietnam which could potentially gain an increased sourcing of production from Japan, South Korea, and China, while Singapore might get the least benefit as it already has free-trade agreements with other member nations.

The election of Trump creates a multifaceted dynamic of impact where on one hand, his plan to kill TPPA might be a setback for the pharma markets in Asia Pacific by closing the door on exports, but on the other hand, Asia’s diversion to the RCEP might open another door to free trade zone and securing their position economically, while at the same time, indirectly appointing China as the leader of the pact. Nevertheless, the seemingly short-sighted protectionist tariffs and TPPA failure might turn the table back at the USA in the long run by having their manufactured pharma goods to lose out on lower tariffs and market access to members of RCEP, which consists of countries with a large pharma manufacturing presence. Trump’s trade protectionist vision in the long run might, ironically, harm the American consumers with fewer choices and higher prices of pharma goods.


Sanjeev Kumar is the Industry Manager at Frost & Sullivan. Sanjeev is based out of Kuala Lumpur Malaysia and can be reached at sanjeev.kumar@frost.com | +607 560 3686

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