OPINION:
The Trump administration is making a bold and important effort to hold our international partners accountable and bring down drug prices for Americans.
Wealthy allied nations such as Germany, Japan, Canada, Italy, Spain and South Korea have built elaborate systems to suppress what they pay for innovative medicines. This shifts the burden of global pharmaceutical research and development almost entirely onto American patients and taxpayers.
This White House deserves credit for addressing this glaring trade problem.
Still, the remedy must match the diagnosis. As Washington debates how to close the price gap, there is a temptation to reach for domestic price controls, whether through the Inflation Reduction Act’s negotiation regime or most-favored-nation pricing indexed to what foreign governments pay.
The latter approach imports the prices that our trading partners extract through market manipulation, punishes the innovation engine that those same partners depend on and leaves the underlying trade distortion completely intact. It would reward the freeloaders.
The administration has a better tool in Section 301. It should lean into it.
How allied governments game the system
Consider how Germany, Europe’s largest economy, prices American medicines. The German Federal Joint Committee concludes that in 55% of new drug assessments, innovative medicines offer no added benefit over existing treatments. In 74% of those cases, it benchmarks against older generics rather than the current standard of care. This methodology is designed to produce low prices, not accurate ones.
The result: mandatory rebates on all patent-protected medicines and a price freeze in place since 2010. Germany spends just 0.36% of gross domestic product per capita on innovative medicines. Meanwhile, the United States spends 0.78%.
American patients are, in effect, subsidizing pharmaceutical access for German ones. Rather than correcting course, Germany introduced legislation in April to extend that freeze through 2030 and further increase mandatory rebates.
Japan recently announced price cuts targeting major U.S. medicines, and Switzerland has moved in a similar direction. The pattern is unmistakable: If the United States absorbs the cost of global drug development, our trading partners see no reason to pay their fair share.
This is not a market outcome. It is coordinated free-riding, and it demands a trade response.
Why price controls make things worse
Capping domestic drug prices by tethering them to what Germany or Japan pays through government coercion does not fix an unfair global system. It ratifies it.
The U.S. pharmaceutical sector leads the world in drug development because American prices have historically supported the returns that make enormous R&D investment worthwhile. Fifty-seven percent of medicines launched globally in the past decade originated in the United States.
That pipeline does not sustain itself on artificially suppressed prices. Importing foreign reference prices does not level the playing field. It lowers the floor for everyone, including patients in allied countries who eventually benefit from drugs discovered and developed here.
Section 301 can bring them to the table
Section 301 of the Trade Act of 1974 is the most powerful enforcement instrument that the Office of the U.S. Trade Representative has against unfair foreign trade practices. It authorizes investigations, creates leverage through the threat of trade restrictions and has produced dozens of binding agreements.
Used here, it would send a message that our trading partners cannot ignore: The U.S. will no longer underwrite global pharmaceutical innovation while others reap the benefits at artificially suppressed prices.
The administration has already proved that the tool works. In April, the United States concluded a landmark pharmaceutical pricing arrangement with Britain, a first-of-its-kind agreement establishing a framework for Britain to increase its spending on innovative medicines in exchange for significantly lower tariffs.
The agreement demonstrates that foreign governments will move when American trade pressure is credible. On June 18, the trade office sensibly initiated a Section 301 investigation into Germany’s pricing policies. Japan, Canada, Italy, Spain and South Korea should be next.
A coordinated series of Section 301 investigations would give the office a platform to negotiate bilateral agreements requiring higher pharmaceutical spending targets, science-based benefit assessments and an end to price-freeze regimes that have turned allied healthcare systems into permanent freeloaders on American innovation.
The better path
I served in the Trump administration because I believe in using American strength and economic, diplomatic and legal resources to produce fair outcomes for American workers, patients and industries.
Section 301 is exactly that: a proven mechanism for enforcing fair trade, not a blunt domestic instrument that punishes American innovators for a problem created abroad.
The administration has correctly identified foreign pharmaceutical freeloading as a priority. Now it should pursue a targeted solution that solves it.
• Jack Kalavritinos was a senior Department of Health and Human Services and Food and Drug Administration official in the first Trump administration and is the founder of JK Strategies.
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