Trump Scores Big Win on Drug Prices, Trade

In the ongoing effort to reduce drug costs for Americans without jeopardizing our unrivaled access to lifesaving medicines, our most important concern remains avoiding government price controls that only end up making their targeted products unavailable.  

In that endeavor, President Trump notched an enormous win for American consumers this week through a new trade agreement with the United Kingdom.  

Under the terms of the deal, the U.K. will relax its artificial drug price controls, and in return the U.S. will refrain from imposing tariffs on British medicines, pharmaceutical ingredients and medical devices.  That constitutes a win/win for both nations.  

For decades, America has led the world in drug innovation, accounting for approximately two-thirds of all new medicines introduced to the world annually.  That’s the direct result of our greater emphasis on free markets and protection of intellectual property (IP) – patents, copyrights, trademarks and trade secrets – compared to the rest of the world.  

Unfortunately, over time that has cultivated a “free rider” problem vis-à-vis the rest of the world.  

Specifically, just as America’s military has underwritten global security since World War II, our enormous pharmaceutical investment in research and development has provided the rest of the world with access to lifesaving medicines created here.  Those beneficiary nations proceed to impose government price controls under the guise of “negotiations” on price.  

Those governments don’t negotiate, however – they dictate.  Drug innovators are given a take-it-or-leave-it capped price, often far below market value.  Americans consequently shoulder an outsized share of the world’s R&D bill because prices aren’t centrally fixed here, while consumers in more controlled markets wait longer – or forever – for new innovative medicines.  

Simply put, for too long Americans have disproportionately subsidized the world’s drug innovation pipeline.  Other advanced nations enjoy U.S.-created pharmaceuticals, but impose drug price controls that leave Americans carrying a disproportionate burden of global innovation costs.  

To rectify that free-rider state of affairs, some advocate a misguided proposal to import those other countries’ price controls here to America.  Recently, that idea has assumed the name of “Most Favored Nation” programs, under which the U.S. government would cap drug prices at the lowest price paid by other developed nations.  Under their logic, imposing other nations’ price controls here at home would somehow force those other nations to begin adjusting their prices upward toward market value.  

As noted above, however, those price controls don’t bring drug costs down – they make targeted drugs unavailable.  It’s magical thinking to believe that we can copy the price control without copying the shortage.  

A better idea existed, however, and the Trump Administration just put it into practice:  Use trade negotiations with other countries to force binding commitments to remove their market-distorting price controls.  

In the same way that President Trump has successfully pressured Europeans to increase defense spending after decades of free-riding on U.S. defense spending, he employed tough trade negotiations to end their exploitation of American pharmaceutical R&D.  

That’s precisely what happened when Trump finalized the agreement with the U.K. government.  After years of moralizing about pharmaceutical “overpricing,” they agreed to pay a more fair market price for medicines.  In return, we dropped the specter of tariffs on their pharmaceutical and medical products.  

Both sides can call it a win, and on this occasion they’re right.  

American preeminence in lifesaving pharmaceuticals is no accident.  Rather, it’s the direct result of the U.S. emphasizing markets over mandates compared to our global counterparts.  Innovation is costly, uncertain and gradual – unless governments begin suffocating it with price controls and weak patent protections.  

Accordingly, the U.S. should export our proven policies, not import other countries’ failed price control policies via Most Favored Nation proposals or any other schemes.  In that spirit, President Trump’s agreement with the U.K. points the way.  Instead of setting prices, Washington raised the bar on expectations abroad.  If other nations want lifesaving medicines invented in the U.S., let them stop treating American consumers as beasts of burden.  

Going forward, the choice is straightforward:  Do we import the failures of foreign bureaucracies, or do we export our proven policies to our trading partners?  This week, we opted for the latter, and for that consumers in both the U.K. and America can be grateful. 

Timothy H. Lee is Senior Vice President of legal and public affairs at the Center for Individual Freedom.

Reprinted with Permission from CFIF – By Timothy H. Lee

The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.