Big Pharma Got Its Tariff Exemption. The Biotech ETF Barely Blinked
A 100% tariff on imported drugs just expanded to cover every drugmaker in the country, yet the biotech market's most closely watched fund treated it like a non-event. The reason says everything about who actually pays.
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The second phase of the Section 232 tariff on imported patented drugs and their key ingredients began on September 29, 2026. That extended a duty that has covered a first group of named companies since July 31, 2026, to every other drugmaker.
The SPDR S&P Biotech ETF (NYSEARCA:XBI) rose 0.15% in that session and trades at $156.84. Meanwhile, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) slipped 0.17%.
That is close to flat for a policy with a 100% default rate. A measure raising landed costs produced no visible move. It raises the cost of an entire category of imported medicine, yet the industry’s most-watched basket did not shift.
The calm reflects that major companies negotiated exemptions in advance. The remaining cost falls on companies the index does not weight heavily and will likely surface slowly.
What Took Effect and Who Pays What
Companies with an approved US manufacturing plan pay 20%, rising to 100% by 2030, while imports from the European Union, Japan, South Korea and Switzerland face 15%.
Most-favored-nation pricing means the government gets the lowest price a company charges elsewhere. Companies with both a manufacturing plan and such a deal pay 0% until January 2029, so the zero rate is a delayed end date, paid for with price concessions.
Signers include AbbVie, Amgen, AstraZeneca, Bristol Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Pfizer and Sanofi. No implementation guidance had been issued as phase two began.
Why XBI Barely Moved
The schedule has been public since spring. BioCentury’s Steve Usdin summed it up: “The big companies have gotten themselves exempt through the MFN and onshoring deals.”
Generics, biosimilars, orphan drugs and cell and gene therapies are also exempt, which carves out much of what a biotech basket holds.
XBI is equal-weighted, and its June 30, 2026 filing shows positions generally below 1.5% of net assets, many of them clinical-stage developers. A company with no approved product and no imports cannot be tariffed on revenue it does not have.
Where the Cost Lands and How It Gets Passed On
The exposure sits with mid-size and smaller branded drugmakers without deals, especially those manufacturing in China or India.
Each can absorb the cost, raise prices, move production or cut spending elsewhere. Merith Basey of Patients for Affordable Drugs warned that tariffs of this size “could have enormous consequences,” including higher costs and worse shortages.
Because a smaller company cannot fund American plants, scale becomes the qualifying condition for the discount, and the pipeline XBI is built on would absorb that bill years from now.
Why XBI Over IBB
XBI fell 3.13% over a week and 3.43% over a month, but is up 28.73% year to date and 58.42% over one year. The market absorbed this event without pulling back.
The alternative is the iShares Biotechnology ETF (NASDAQ:IBB), which is weighted by market value and leans toward large companies that negotiated relief. It rose 0.16% in the same session and is up 25.16% year to date, trailing XBI.
XBI’s returns depend on clinical data and approvals, which the tariff does not directly affect, while a cap-weighted fund bears more of the price concessions that bought the exemptions.
Watch implementation guidance when it arrives. If it narrows the orphan or cell and gene therapy exemptions, the case for XBI weakens. January 2029 marks the end of the large-cap delay.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
