On April 15, the Financial Association reported (Editor: Bian Chun) that the USA government disclosed that an investigation has been initiated regarding 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, and it may further escalate the trade war initiated by the USA.

The USA Department of Commerce stated in two 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 the National Security of the USA.

These investigations (referred to as 'Section 232 Investigations') began on April 1, which was the day before Trump announced imposing 'reciprocal tariffs' on all imported Commodities (with a special exemption for Pharmaceuticals).

'Section 232 Investigations' refer to investigations initiated by the USA Department of Commerce based on the authority provided in Section 232 of the Trade Expansion Act of 1962, to determine whether imports of specific products pose a threat to the National Security of the USA. This investigation allows the USA president to restrict imports of products considered to pose a threat to National Security.

According to legal regulations, the Secretary of Commerce should submit the investigation results within 270 days, but USA President Trump and other officials have indicated that this process may conclude sooner.

Pharmaceuticals

The investigation concerning Pharmaceuticals will cover all imports of Pharmaceuticals, including finished generic drugs and original research drugs, as well as the ingredients used to produce these drugs. Investigators will also review the imports of key medicinal ingredients.

The investigation will examine specific issues, including the current and projected demand for Pharmaceuticals and drug ingredients in the USA; the role of foreign supply chains, particularly those of major exporters, in meeting the USA's demand for Pharmaceuticals; the concentration of imports among a few suppliers and the associated risks; and the feasibility of increasing domestic production capacity for Pharmaceuticals and raw materials.

Last week, Trump stated that he would impose 'high tariffs' on prescription drug imports in the coming weeks. He believes the USA is a huge market, where the prices paid for Pharmaceuticals are often many times higher than those in countries that produce drugs, and that imposing tariffs on Pharmaceuticals could encourage pharmaceutical companies to set up factories in the USA.

Trump's threat to impose tariffs on Pharmaceuticals has made the Pharmaceutical Industry uneasy. Experts warn that this plan could disrupt Global supply chains. In addition to price increases caused by tariffs, they are also concerned about generic drug manufacturers exiting the market, which would exacerbate existing drug shortages.

Semiconductors.

The investigation by the USA Department of Commerce into Semiconductors is broad and will assess the import situation of traditional and advanced chips. According to government announcements, this investigation will cover all imports of Semiconductors, as well as equipment used to manufacture these Semiconductors, including electronic products that contain these components.

The USA Customs and Border Protection (CBP) released updated tariffs last Friday, exempting import tax rates on categories of commodities including Automatic Data Processing, computers, Communications Equipment, displays and modules, and Semiconductors, unaffected by 'reciprocal tariffs.'

However, Trump stated on Social Media last Sunday that the USA government has not announced any 'exemptions' from tariffs, 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 their factories to the USA.

The USA Secretary of Commerce, Gina Raimondo, stated last Sunday that smart phones, computers, and other electronic products are not subject to "reciprocal tariffs," but will be included under the Semiconductors tariffs, which may be implemented in one or two months.

The Section 232 investigation is often used by the USA as a tool for implementing trade protectionism, imposing tariffs on imported products under the guise of National Security. In March of this year, Trump also initiated a Section 232 investigation targeting the Copper and Lumber Industries. He has already imposed tariffs on imported Steel, Aluminum, and Autos using the Section 232 investigation.