Denmark’s economy boomed on drug exports — Trump’s tariffs threat won’t be what slows it down

Denmark’s economic growth, which economists say is due to an “exceptional surge” in pharmaceutical exports, is expected to weaken this year — but the looming threat of U.S. tariffs on the pharma industry won’t be much of a contributing factor, according to the International Monetary Fund.

The IMF on Tuesday said in its latest report on the Nordic country that it expects Denmark, whose economy grew 3.7% in 2024, to see its output moderate to 2.9% this year and to 1.8% in 2026. The declines are set to take place amid anticipated weakness in export growth, including that of pharmaceutical goods.

The fund nevertheless noted that Denmark will be protected from potential U.S. tariffs on pharmaceutical imports, as most Danish drug products are neither produced in the country, nor cross its borders.

Danish drugmakers have become increasingly reliant on a “merchanting and processing” system in which most of the value of the medicines is attributable to the intellectual property embedded in them, with drugs companies contracting manufacturers in other countries to produce and ship the products.

“The U.S. is a key trading partner; however, exports produced in Denmark passing through customs account for only 3 percent of total exports, limiting the direct impact of U.S. tariffs on the Danish economy,” the IMF said, adding that “direct impacts from U.S. tariffs are expected to be limited, but heightened trade tensions and trade policy uncertainty pose risks to the outlook.”

Beyond 2026, the fund said, medium-term growth is projected at around 1.5%, “reflecting a maturing pharmaceutical sector and a declining working-age population.”

Last fall, IMF economists remarked that Denmark’s growth had been driven by an “exceptional surge” in its pharma industry while the rest of the economy had remained “relatively subdued.”

The fund singled out Danish pharmaceutical giant Novo Nordisk’s massive increase in foreign demand for its diabetes and weight loss medications, Wegovy and Ozempic, as a driver of growth, noting that the company’s sales as a share of Denmark’s GDP increased from 1% in the early 1990s to 8.3% in 2023.

A bigger headwind for the wider European pharmaceutical industry is U.S. President Donald Trump’s threat to impose tariffs on drug imports.

Pharmaceuticals were exempted from Trump’s initial “reciprocal” tariffs regime announced in April, but the president has since set his sights on the global industry, threatening to place separate levies on pharmaceuticals exported to the States and demanding that U.S. drug prices come down.

Signaling his intent on the matter, Trump on Monday signed an executive order directing drugmakers to lower their drug prices to align with the significantly lower prices that are paid abroad.

The president did not refer to specific nations, but signaled that he would target other developed countries because “there are some countries that need some additional help, and that’s fine.”

“Basically, what we’re doing is equalizing,” Trump said during a press event on Monday. “We are going to pay the lowest price there is in the world. We will get whoever is paying the lowest price, that’s the price that we’re going to get.”

White House officials did not disclose which medications the order will apply to, but said that it will impact the commercial market as well as Medicare and Medicaid. 

In 2022, U.S. prices across all drugs (brands and generics) were nearly three times as high as prices in 33 OECD comparison countries, according to data released in 2024 by the U.S. Department of Health & Human Services.

The threat of tariffs on pharmaceutical imports has been described as a “sword of Damocles” hanging over Europe’s pharma industry, with CEOs warning that there could be an exodus of major continental players to the U.S. in a bid to avoid levies.

The European Federation of Pharmaceutical Industries and Associations (EFPIA), which represents major European pharmaceutical companies — including Novo Nordisk, Bayer, AstraZeneca, GSK, Roche and Sanofi — warned European Commission President Ursula von der Leyen in April that “unless Europe delivers rapid, radical policy change then pharmaceutical research, development and manufacturing is increasingly likely to be directed towards the U.S.”

It said that a survey of its members showed that around 100 billion euros ($112 billion) worth of capital expenditure and research and development investments were at risk as a result.

“The U.S. now leads Europe on every investor metric from availability of capital, intellectual property, speed of approval to rewards for innovation. In addition to the uncertainty created by the threat of tariffs, there is little incentive to invest in the EU and significant drivers to relocate to the U.S.,” the EFPIA said.

— CNBC’s Annika Kim Constantino and Karen Gilchrist contributed reporting to this story