Last week’s announcement from the White House that the U.S. government would levy import taxes on certain patented pharmaceuticals and associated ingredients using the Section 232 national security tariff authority could, ironically, endanger the national security asset that is our balanced prescription drug market. Taxpayers, as a result, are in danger as well. National Taxpayers Union (NTU) President Pete Sepp offered the following reaction.
“America’s unique prescription drug environment, where nearly 90% of all blockbuster drugs are available to patients, and more than 90% of prescriptions are filled via generics, already serves taxpayers well. This balance of access and affordability means that government health care programs benefit over the long term from drug breakthroughs that reduce costly hospital stays and other treatments, and benefit over the nearer term from the price competition that generics provide. As NTU has testified to the U.S. Trade Representative previously, this arrangement also happens to be a national security asset in itself, by providing the United States with an edge in both developing new cures and ensuring prices are kept in check. Diverse supply chains likewise help the U.S. to keep supplies fully stocked.
“Now the Commerce Secretary’s policies could upset this elegant system, by threatening tariffs of up to 100% on imports of many vital ingredients and medicines from abroad. The fact that companies that don’t negotiate ‘Most Favored Nation’ policies (i.e., imported price controls) can pay a 20% tariff instead, is little better in concept than the Biden era’s prescription drug ‘price negotiation’ scheme, which threatened a 95% excise tax against companies that didn’t accede to the government’s pricing demands. In any case, the reprieve would be temporary, because the 20% ‘discount’ rate would rise to 100% by 2030.
“Generic and biosimilar products, as well as associated ingredients, would be initially exempt, but the tariff sword would still be hanging over their heads too. If, after a year, the Commerce Secretary ‘deems appropriate,’ the President may be informed of ‘circumstances’ that would recommend ‘the need to take action to adjust the imports of generic pharmaceuticals and their associated ingredients.’
“The Administration was on the right track in providing for lower tax rates on imported drugs and ingredients from allies under existing trade agreements with the EU, Japan, Korea, Switzerland, Liechtenstein, and in an upcoming trade agreement with the U.K. NTU has noted that, based on their economic capacity, governments in industrialized nations abroad can and should pay much more for U.S.-developed pharmaceuticals than they currently do.
“By imposing reimbursement caps that suppress prices through administrative fiat, foreign health systems effectively shift a disproportionate share of research and development costs onto U.S. patients and taxpayers. Making developed countries pay their fair share would restore balance to the global pharmaceutical market without risking the incentives that lead to new drug discoveries for patients.
“But the way to correct this fiscal injustice is not through temporary tariff changes, but through persistent, firm trade negotiations, rather than onshoring the worst practices of countries with socialized medicine. Ultimately, American patients and the taxpayers who support government health programs will foot the bill for tariffs on incoming products. In fact, the Administration seems to recognize this problem for at least part of the market, by exempting ‘orphan drugs’ from the tariff regime. Price controls on these products would only hamper additional development and cause shortages as well as higher prices for patients here. The U.S. government should apply this wise policy to all prescription drugs as it seeks better burden-sharing from our trading partners.
“American taxpayers deserve a health care system that rewards innovation and competition, and does so by avoiding the mistakes of countries that practice socialized medicine. Both the executive and legislative branches should turn away from Most Favored Nation price controls and instead embrace the policies that can make American health care great.”