Five ways pharma can leverage AI amid tariff turmoil

So far, the pharmaceutical sector has weathered the tariff storm well, with the S&P Healthcare index down 0.5% this year, in contrast to a 7.5% drop in the S&P 500. But U.S. President Donald Trump has signaled major tariffs will be applied to imported pharmaceuticals starting mid-May, after 30 years of few or no tariffs.

Trump’s announcement comes in spite of Bristol Myers Squibb planning to invest $40B in the U.S. over the next five years to expand its research and manufacturing presence, and Eli Lilly committing to invest at least $27B building domestic manufacturing plants.

His target: China and India, which together supply over 70% of active pharmaceutical ingredients used in U.S. drug manufacturing — adding up to around $140B of prescription drug imports every year.

The tariffs will affect prices, disrupt supply chains, and influence the availability of pharmaceutical ingredients and technologies. As the managers of contracts, GCs are the architects of this pharma supply system. Now is the time to audit, renegotiate, and fortify.

What to do

GCs should review current and future supply or purchase contracts, especially for clauses on country-of-origin warranties, force majeure, change of law and termination for convenience or cause.

1. Country-of-origin warranties

The U.S. is expected to crack down on transshipment and mislabeling to avoid tariffs. Contracts should include clear obligations around country-of-origin disclosure, as these are used to dictate which tariffs apply to the product.

AI impact: Identify whether contracts contain compliance-related warranties and highlight inconsistencies across suppliers.

2. Force majeure and hardship clauses may not be sufficient

Traditional force majeurelanguage may not cover tariffs or political decisions. GCs shouldevaluate whether hardship clauses allow for commercial rebalancing.

AI impact: Cluster and benchmark force majeure and hardship language, get summaries of force majeure provisions, identify specific language like "tariffs" or "embargoes" that has been used in force majeure clauses. Quickly identify exposure and prioritize renegotiation targets.

3. Change in law clauses

Tariff-related disruptions fall squarely into the “change in law” category, but only if contracts say so. GCs should review whether these clauses cover foreign laws and regulatory shifts and trigger renegotiation rights or automatic pricing reviews.

AI impact: Use Legal AI to identify and analyze which agreements include (or lack) robust change in law clauses.

4. Adaptive pricing mechanisms

Tariffs introduce volatility. Contracts that lock in fixed pricing without adjustment options expose the business to margin erosion.

AI impact: Leverage clause analytics to flag pricing mechanisms, fixed and variable pricing terms and highlight contracts without built-in cost pass-through options.

5. Ambiguities in definitions cause disputes

Vague or outdated definitions of "tariffs," "duties," or "trade restrictions" can cause confusion, especially with shock. Contracts need to reflect the current legal and regulatory landscape to avoid litigating about definitions in the future.

AI impact: Models can detect outdated or inconsistent definitions, giving GCs a blueprint for updating playbooks and clause libraries.

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