There’s some good news for President Trump amid economic and legal uncertainty over his tariff agenda. The administration has an agreement under which the United Kingdom’s National Health Service will increase the prices it pays for new, patented U.S. medicine by 25 percent while lowering the concessions it demands from U.S. drugmakers under various rebate schemes. In return, the United States will refrain from imposing Section 232 and 301 tariffs on British-origin drugs, ingredients and medical technology.
While it’s true that tariffs and other trade barriers harm competition and innovation while increasing prices for consumers, targeted “carrots” and “sticks” that goad other governments into lowering discriminatory obstacles can be a win-win for competition, innovation and the economies of both countries. That appears to be the case here.
What’s more, compared to broad tariffs justified under dubious “national emergency” powers, the Supreme Court is less likely to strike down narrowly targeted “sticks” against other governments’ “anti-competitive market distortions.” In this case, the trade talks may lower prices for Americans struggling with high drug prices at home.
Americans pay three to four times what other countries’ citizens pay for drugs. American taxpayers and private patients subsidize pharmaceutical innovation for the rest of the world. This is mainly because other nations’ single-payer healthcare systems use their buying power to suppress what they pay for patented medicines, securing them at below fair-market value.
By contrast, except for some drugs starting in 2026, the Centers for Medicare and Medicaid are generally prohibited from such negotiations and instead pay prices pegged to the U.S. private market. Drugmakers expect to make most of their revenues from U.S. taxpayers and health plans, allowing Americans to access the most and newest drugs before foreigners can.
However, drugmakers also inflate what they charge American private health plans and patients above market-clearing levels. This increases the price of every drug that CMS, which serves 160 million Americans, buys.
It gets trickier. Negotiating prices for CMS drugs would certainly lower American drug prices, but it would also drastically reduce drug companies’ revenue to develop cures and innovations. It takes 10-plus years and billions of dollars to bring cutting-edge pharmaceuticals to market, including the costs of trials and the expensive FDA approval process. Most trials won’t even yield a commercially valuable drug.
Massive upfront investments are driven by expected future revenues. Drugmakers must secure a 62.2 percent profit margin from successful products to achieve a 4.8 percent return on their assets. Higher failure rates and research costs in recent years have made investments more precarious.
If patented drugs are expensive, prices decline rapidly with the entry of generic competitors once patents expire. There will be fewer generics if manufacturers have nothing new to replicate.
Suppressing CMS payments for drugs without inducing other countries to make up the shortfall could lead to 167-342 fewer new approved drugs over 18 years. The resulting “drug payment reductions” to healthcare providers could also drive many to close, especially in already underserved rural areas.
These are also long-term risks of the president’s “Most Favored Nation” executive order, which forces drugmakers to lower their U.S. prices by threatening tariffs, revocations of FDA approvals, export restrictions, targeted lawsuits and other penalties. Although threatening drugmakers with penalties has led to deals that temporarily lower prices and allow more Americans to access blockbuster drugs, the long-term consequences of chilling R&D incentives could be severe, as new medications could be subjected to future price controls.
Conversely, using America’s leverage as the world’s largest economy to pressure other nations to raise what they pay in return for drugmakers to lower their domestic drug prices would ensure lower prices for Americans while also preserving incentives to invest in discovering and bringing the next miracle drug to market.
The UK-U.S. pharmaceutical pricing deal is a commendable example of what’s possible. It is hoped that deals with other countries will follow. Lower trade barriers and fewer distortionary policies, such as price controls, will drive competition and help create and spread cutting-edge cures, which benefit global health while keeping America great.