Tariffs, Pricing and Onshoring: The consequences of U.S. Section 232 pharmaceutical measures, most-favoured-nation pricing and onshoring agreements for Canadian and Quebec contract research and contract development and manufacturing organizations
How are U.S. Section 232 tariffs, Most-Favoured-Nation pricing, and onshoring agreements reshaping the Canadian life sciences landscape? Authored by Laurent Lecanu, Head of Life Science Cluster North America, this white paper delivers a segment-by-segment analysis of the operational risks, market shifts, and strategic opportunities facing CROs and CDMOs through 2030. Preview the key findings below and download the full report.
Abstract
On 2 April 2026 the United States invoked Section 232 of the Trade Expansion Act of 1962 to impose tariffs of up to 100% on imported patented pharmaceuticals, their active pharmaceutical ingredients (APIs) and key starting materials.
The measure became fully applicable to all importers on 29 September 2026. It operates alongside two company-level instruments: most-favoured-nation (MFN) drug pricing agreements negotiated with the Department of Health and Human Services, and onshoring agreements negotiated with the Department of Commerce.
This paper examines how the three instruments, taken together, affect Canadian and particularly Quebec contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs), now and over the period to 2030.
We find that the immediate, direct impact on the sector is narrower than the headline 100% rate suggests, because generics, clinical and research materials, products of companies holding MFN and onshoring agreements, and certain specialty products are exempt or zero-rated.
However, Canada obtained none of the preferential treatment granted to the European Union, Japan, South Korea, Switzerland or the United Kingdom, and the U.S. rule that a drug’s origin follows its API places Canadian API producers in the most exposed position.
More importantly, the combination of tariffs with MFN and onshoring commitments is redirecting future commercial manufacturing toward the United States and is making Canada, a reference country in the U.S. MFN basket, a lower-priority launch market.
These forces threaten the commercial pipeline on which the CDMO business model depends and, indirectly, the siting of late-phase clinical trials. Generic manufacturing faces the most severe structural risk: an announced, though not yet enacted, schedule of 100% tariffs from August 2028 rising to 200% in 2029 would be prohibitive for a low-margin sector that accounts for most Canadian drug exports to the United States.
Key findings
- Canada faces the default 100% Section 232 rate on covered patented pharmaceuticals, with no CUSMA exemption and no negotiated reduced rate, unlike the EU, Japan, South Korea and Switzerland (15%) and the United Kingdom (0%).
- Because U.S. customs practice treats the country of the API as the origin of a finished drug, a Quebec fill-finish CDMO using U.S. or EU API may face 0% or 15%, while Canadian-made API carries the full 100% rate wherever it is finished.
- CROs are largely shielded from direct effects: services are not goods, and imports used solely for clinical trials, research and development are zero-rated. Their exposure is indirect, through the relocation of commercial manufacturing and the deprioritization of Canada as a launch market.
- The zero rate enjoyed by large pharmaceutical companies with MFN and onshoring agreements is a transition period rather than a shelter: it expires on 20 January 2029 and is conditional on audited commitments to increase U.S. production.
- MFN pricing, which benchmarks U.S. prices against a basket that includes Canada, creates incentives to delay or forgo Canadian launches; industry surveys report cancelled and delayed launches in 2026, although Canadian regulators had not yet observed the effect in their statistics.
- Generics, currently exempt and representing roughly four-fifths of Canadian-made drugs exported to the United States, face an announced 100% tariff from August 2028 and 200% from August 2029. Reshoring timelines of five to ten years make this schedule impossible to meet through new construction.
- Canada’s most plausible path to tariff relief may run through drug-pricing concessions of the kind made by the United Kingdom, placing the interests of Quebec’s life sciences sector and its public drug budget in tension.