NEW YORK/LONDON — US President Donald Trump’s threat to impose 100% tariffs on branded drugs ratcheted up pressure on pharmaceutical companies to agree price cuts and shift manufacturing after talks faltered earlier this year, industry lobbyists and executives said.

The squeeze produced what Trump is touting as the first big move – Pfizer on Tuesday agreed to slash drug prices in Medicaid for low-income people and for new drugs in exchange for relief on tariffs, setting a bar lobbyists say rivals may be forced to match or beat.

Pfizer CEO Albert Bourla said he would invest $70 billion in the United States, including in repatriating the manufacturing of medicines sold in the country. The deal boosted Pfizer’s shares and those of US and European rivals on hopes of similar agreements.

Trump, who said more deals with drugmakers would be announced in the coming weeks, in July had set a September 29 deadline for 17 top drug companies to agree to cut prices.

STALLED TALKS WERE FOLLOWED BY MORE TARIFFS

With talks stalled, Trump last week announced a 100% tariff on branded-drug imports starting October 1, exempting firms already building US plants and surprising an industry that had been expecting more lenient treatment.

One pharmaceutical industry lobbyist, who asked for anonymity, said Trump appeared to have lost patience with the political process, citing the US government shutdown and his urgency to push through his agenda.

A US government shutdown began Wednesday after Congress and the White House failed to reach a funding deal.

A White House official said that Trump was “wholeheartedly committed to lowering drug prices for Americans and will not hesitate to utilize tariffs to do so.” The official said the Commerce Department would start preparing tariffs on October 1 for companies that do not move manufacturing or cut prices.

The tariff threat was perceived by the pharmaceutical industry as an attempt to drive drugmakers to offer more substantive price cuts, with Trump hoping to force them down by 30% to 80%. He has also been heaping pressure on drugmakers to invest more in US manufacturing.

Centers for Medicare and Medicaid Services Administrator Mehmet Oz said during a press conference that the government’s breakthrough with Pfizer occurred last week. Pfizer, a US firm, has manufacturing sites around Europe.

LOOKING FOR QUICK CONCESSIONS
The White House is seeking quick, headline-ready concessions, but the US system isn’t built for such rapid, substantive cuts without other changes like reforming the role of pharmacy middlemen and hospital drug pricing, one pharmaceuticals executive said.

That’s not going to happen overnight, the executive said. “It’s real and significant work and involves structural changes that are required in the US healthcare system.”

Unlike most other countries, the US has a private healthcare system that does not buy medicines and negotiate prices for its citizens. Studies have shown that the US pays often nearly three times as much as other wealthy nations.

A second pharmaceutical executive said the impact of Pfizer’s deal was not clear and that he needed more information, particularly on the company-specific tariffs exemption offered.

Several drugmakers, including Johnson & Johnson, Roche and Sanofi, have pledged to pump hundreds of billions of dollars into US manufacturing in the coming years, giving Trump a political win. Still, some of these commitments may have been happening anyway.

DIRECT TO CONSUMER PRICING
Others have also set up direct-to-consumer pricing for some of their drugs, to be listed on a new website from US lobby group PhRMA, and raised medicine prices in Britain in line with Trump’s desire to offset price decreases in the United States.

Bristol Myers BMY.N and Pfizer announced in July that they would start selling their blockbuster blood thinner Eliquis directly to patients. The program, targeted at the small percentage of uninsured or under-insured Eliquis patients, offers a 43% discount to the list price, which is more than nine times the average out-of-pocket cost paid by commercially insured patients. AstraZeneca last week announced a similar program for its diabetes and asthma drugs.

Peter Kolchinsky, managing partner at RA Capital Management, said the US administration’s push to get lower prices domestically and to force other countries to pay more, could end up causing US prices to rise if fewer countries buy the drugs.

“Forcing companies to charge the same net price everywhere would backfire on Americans,” he said. — Reuters

The US government shutdown has thrown the brakes on the flow of federal economic data at a moment of uncertainty and division among policymakers like those at the Federal Reserve about the health of the US job market, the trajectory of inflation and the strength of consumer spending and business investment.

But the shutdown itself – if history is any guide – is unlikely to leave a lasting imprint on the US economy itself, even if it leaves policymakers and investors flying somewhat blind for an unknown stretch.

Over the last half century, the 20 previous shutdowns have lasted on average eight days and a median of four days, hardly long enough for the suspension of some government services and pay to federal workers to crater the economy.

That doesn’t mean it isn’t a headache for investors and officials tasked with economic stewardship.

Fed officials, for instance, have a decision on interest rates coming in four weeks that hinges in particular on their sense of just what is going on with the two things that most concern them – the job market and inflation.

For as long as the closure lasts, they will have to sift through a clutch of private-sector-sourced data sets that have been seen as limited substitutes for the granular figures issued by the Bureau of Labor Statistics, Bureau of Economic Analysis and Census Bureau.

“It pains me that we wouldn’t be getting official statistics at exactly a moment when we’re trying to figure out is the economy in transition,” Chicago Fed President Austan Goolsbee said Tuesday on “The Claman Countdown” on Fox Business.

JOBS REPORT DELAYED DURING SHUTDOWN
The Fed cut interest rates last month for the first time since December on growing concern about the job market. Projections from policymakers issued alongside that decision, though, showed a number of them are not convinced risks to the job market are significant enough to warrant more cuts in the near term.

Now they may not see the benchmark monthly employment report from BLS – originally scheduled for release on Friday – before their October 28-29 meeting if a shutdown drags on for weeks like the most recent one did during President Donald Trump’s first term.

Day one of the shutdown cast their dilemma in stark relief.

A measure of private-sector employment from payrolls processor ADP showed employers unexpectedly reduced headcount by 32,000 jobs in September, and private employment by their count has fallen in three of the past four months. With no data coming soon from BLS to truth-test that outcome, officials and economists have to decide how much weight to put on a data series long viewed as a poor proxy for the government data.

At the same time, recent large revisions to BLS data – and Trump’s firing of the BLS chief in August – have dented the agency’s credibility and have spurred interest in alternative data sources, including ADP.

“Growing concerns about the integrity of governmental economic data as well as the ongoing government shutdown have emphasized the need to broaden our data coverage, which will now include the ADP national employment report,” Matthew Martin, Senior US Economist at Oxford Economics, wrote on Wednesday.

The private payrolls drop reported by ADP, Martin said, “underscores the reticence of businesses to increase headcount. Given the weaker labor market data and the potential for a data fog should the government shutdown be prolonged, we will be pulling forward our forecasted December rate cut to October in the upcoming baseline.”

‘INCONVENIENT AND MESSY’
Meanwhile, even though hundreds of thousands of federal workers are on furlough and a range of important government services are suspended, shutdowns themselves don’t typically move the needle for the economy.

In only two shutdowns was there a contemporaneous contraction in economic activity – in a two-day shutdown in November 1981 under President Ronald Reagan and a three-day closure in October 1990 under President George H.W. Bush. In both cases, however, the economy was already in recession before the shutdowns occurred.

During stop-and-start shutdowns in the fourth quarter of 1977 under President Jimmy Carter that led to a total of 31 days of government closure spread over three months, economic growth skidded to a halt and curtailed government spending was a net drag on the economy.
But growth snapped back the following quarter, and overall consumer spending was not slowed during the outages.

In fact, consumer spending on balance has continued to grow during the months affected by past shutdowns, growing by an average of about 0.5%. During the longest shutdown on record, a 35-day closure from late December 2018 through most of January 2019 during Trump’s first presidency, consumption over the two affected months fell by an average of 0.3%, but economists then blamed the slowdown on dissipating tailwinds from the tax cuts enacted earlier in Trump’s term and by the trade war he had kicked off with China.

And while the most recent shutdown during Trump’s first term saw a short-lived rise in claims for unemployment benefits by furloughed federal workers, that didn’t bleed into the wider job market. Labor Department data shows little movement historically in new claims for jobless benefits or in the US unemployment rate during the periods affected by shutdowns.

“Government shutdowns are inconvenient and messy, but there is little evidence that they have a significant impact on the economy,” said Scott Helfstein, Head of Investment Strategy at Global X. “Typically, the lost economic activity, if meaningful in the first place, is recovered in the following quarter.” — Reuters

WASHINGTON – US manufacturing activity edged up in September, though new orders and employment were subdued as factories grappled with the fallout from President Donald Trump’s sweeping tariffs.

The Institute for Supply Management (ISM) survey and other private-label data will assume greater importance among investors seeking to assess the health of the economy after the US government shut down at midnight on Tuesday, delaying the publication of key economic data, including the closely watched employment report for September that was due on Friday.

Import duties dominated responses in the ISM survey on Wednesday, with some manufacturers of miscellaneous goods complaining “steel tariffs are killing us.” Paperwork related to tariffs was also causing materials to be held up at borders.

Though some of the uncertainty surrounding trade policy had resolved as deals were made and the levies came into effect, Trump is not done with tariffs, unveiling more duties recently. Tariffs have cast a pall over the economy, and have combined with immigration raids to impede job growth.

Economists warned the 15th government shutdown since 1981, which will slow air travel, suspend scientific research, withhold pay from US troops and lead to the furlough of 750,000 federal workers at a daily cost of $400 million, would further muddy the economic outlook.

“Tariffs are a time bomb for the manufacturing industry which so far has a very long fuse but eventually it will go off and may well bring the entire economy down with it,” said Christopher Rupkey, chief economist at FWDBONDS.

The ISM said its manufacturing PMI increased to 49.1 last month from 48.7 in August. It was the seventh straight month that the PMI remained below a reading of 50, indicating contraction in manufacturing, which accounts for 10.1% of the economy. Economists polled by Reuters had forecast the PMI rising to 49.0.

Only five industries reported growth, including primary metals and textile mills. Among the 11 industries that contracted were wood products, machinery, electrical equipment, appliances and components, transportation equipment as well as computer and electronic products.

Some manufacturers of transportation equipment described business conditions as continuing to be “severely depressed.”

They noted “companies are starting to pass on tariffs via surcharges, raising prices up to 20%.

Others saw no benefit from interest rate cuts and tax reductions from Trump’s “One Big Beautiful Bill,” which passed in July, because “all capital projects are on hold until there is some level of certainty and customers start to place orders for new equipment again.”

Makers of electrical equipment, appliances and components said “customer orders are depressed for heavy machinery because tariffs are so impactful to high-end capital equipment.”

Similar sentiments were echoed by their counterparts in the computer and electronic products sector who said “our industry is at a low point right now.”

Trump, who recently announced a raft of duties including a 25% levy on heavy-duty trucks, has defended the tariffs as necessary to protect domestic manufacturing.

The ISM survey’s forward-looking new orders sub-index dropped to 48.9 from 51.4 in August. This measure has contracted in seven of the last eight months. Backlog orders remained subdued as did export orders. Delivery times lengthened further last month, keeping prices paid by factories for materials high.

The survey’s measure of factory employment rose to a still-depressed 45.3 from 43.8 in August. Some transportation equipment makers said they were “continuing to find ways to reduce overhead, which means letting go of experienced workers.”

Stocks on Wall Street were trading higher. The dollar was little changed against a basket of currencies. US Treasury yields fell.

UNCERTAINTY IS HURTING THE LABOR MARKET
The impact of uncertainty on the labor market was illustrated by the ADP National Employment Report, which showed private payrolls decreased by 32,000 jobs in September, the biggest drop since March 2023, after declining 3,000 in August. Economists had forecast private employment increasing 50,000.

The loss of jobs was almost across industries, with only education and health services, and information reporting gains.

But the ADP is not a true picture of the labor market’s health. The job market has stagnated, with low demand for labor amid weak hiring and the rise of artificial intelligence and a diminishing supply of workers because of immigration raids, creating what Fed Chair Jerome Powell has described as a “curious balance.”

Government data on Tuesday showed there were 0.98 job openings for every unemployed person in August compared to 1.0 in July. Economists expect the lackluster labor market will spur the Fed to cut interest rates again in October.

The US central bank resumed easing policy last month, cutting its benchmark overnight interest rate by 25 basis points to the 4.00%-4.25% range, to aid the labor market.

The ADP report, jointly developed with the Stanford Digital Economy Lab, has a poor record predicting the private payrolls in the Labor Department’s employment report. It will, however, take the spotlight in the absence of the monthly jobs report.

“Ordinarily, ADP’s estimate of monthly employment is of secondary importance to macroeconomic trainspotters,” said Bill Adams, chief economist at Comerica Bank. “It could have outsize influence on the next Fed decision, too, if the shutdown lasts long enough to keep the Fed from seeing the September (official) jobs report before their next decision on October 29.” — Reuters