Pharma, semiconductor and minerals imports draw US scrutiny

Dr. Totis Kotsonis of Pinsent Masons was commenting after details of the investigations were made public.

On Tuesday, US president Donald Trump issued a new executive order that requires the US secretary of commerce, Howard Lutnick, to “initiate an investigation … to determine the effects on national security of imports of processed critical minerals and their derivative products”.

That investigation will involve a broad “review and risk assessment of global supply chains for processed critical minerals and their derivative products” and “analysis of the distortive effects of the predatory economic, pricing, and market manipulation strategies and practices used by countries that process critical minerals” exported to the US – and how that impacts on the viability of US production.

Among other things, the investigation will further break down the “foreign sources” of processed critical mineral imports and derivative product imports and identify the “specific types of risks that may be associated with each source by country”.

The executive order follows publication of notices regarding separate investigations the US Department of Commerce has initiated to determine the effects on US national security of imports of pharmaceuticals and pharmaceutical ingredients (5-page / 227KB PDF), and semiconductors, semiconductor manufacturing equipment, and their derivative products (5-page / 227KB PDF), respectively.

Earlier this month, Trump unveiled a new suite of “reciprocal” tariffs for goods imported into the US, with some limited exceptions – including in relation to pharmaceuticals, semiconductors and certain minerals. The “reciprocal” tariffs were subsequently “paused” for 90 days, though not in relation to China, whilst at the same time the imposition of a 10% baseline tariff, as well as a 25% tariff on steel and aluminium and automotive vehicles, remain.

Kotsonis said the national security investigations now initiated could lead to specific further tariff announcements impacting suppliers of pharmaceutical products, semiconductors, and certain minerals.

“The situation is unfortunately rather volatile and difficult to predict,” Kotsonis said. “We know that a key motivation for the US administration is to onshore critical industries in the US thereby reducing reliance on imports.”

“The issue of onshoring is not new. It has been of concern to the EU, the UK, and the previous US administration. Former US president Joe Biden sought to incentivise onshoring by legislating, providing for generous subsidies under the Inflation Reduction Act 2022 and the CHIPS and Science Act 2022,” he added.

Kotsonis said the question of onshoring is “complex, with no easy solutions”.

“For example, it assumes that supply chains can be replicated in the US, or in any event, in trusted allied countries with which the US has preferential trade arrangements, at a cost which is not substantially higher than current supply chain arrangements, involving China, India and many others,” he said. “That this may be achievable is at best debatable and whilst there is clearly a trade-off between ensuring national security and maintaining cheaper imports, the concern with the hike in tariffs policy is that it provides no opportunity for businesses to adjust.”

“It is of course possible that the US administration might yet provide for time-limited exemptions, but again, the uncertainty that the various iterations of the hike in tariffs policy is causing is one which is unlikely to be welcomed by businesses, in the US and elsewhere,” he added.

Kotsonis said the UK continues with its “cool headed” approach of not seeking to implement retaliatory measures but instead focusing on clinching a bilateral trade agreement with the US, which it hopes will shield UK businesses from current tariff hikes and tariff hikes to come.

Kotsonis said the EU has adopted a more complex “carrot and stick” strategy in response to Trump’s tariff announcements, which he said befits “its greater heft in global trade”.

“Having already announced some retaliatory measures which it then suspended in response to the US ‘pause’ of the ‘reciprocal’ tariffs, the EU is actively engaging in negotiations with the US administration with a view to reaching an agreement that will lead to de-escalation and normalisation of trade between these two critical trade partners and allies,” Kotsonis said.

“The elephant in the room”, Kotsonis continued, is the question of whether the US approach to tariffs is compliant with World Trade Organization (WTO) rules.

“As we highlighted previously, the overwhelming consensus amongst trade experts is that the US approach to tariffs is not compliant with WTO rules.” Kotsonis said. “The fact that this issue is not front and centre of the debate on tariffs unfortunately shows how much the WTO, already compromised as a result of its dispute resolution mechanisms continuing not to be fully functioning, has been further marginalised in the process.”