Trump Should Keep America Competitive By Stopping Foreign Price Controls

President Trump and the Republican Congress have taken critical steps to make America a more competitive place to do business through deregulation and tax reform.

However, more work remains to be done. America needs to get tough on our foreign trading partners to ensure they pay their fair share for the cost of developing life-saving and life-improving medicines.

Allowing the importation of price controlled medicines, as some have proposed, would only make this problem worse.

Trump has Already Made Strong Strides in Making America Competitive Again. Because of the success of tax reform, capital investment is up almost 40 percent in Q1 of 2018 and more than 600,000 new jobs have been created in the first three months of year.  Small business confidence, manufacturer confidence, and middle market business confidence is at an all-time-high.

This is not just about ensuring businesses are able to compete and thrive – by ensuring a stronger economy, Trump has ensured that wages are growing, new and better jobs are being created, and workers have more money in their paycheck.

The pro-growth tax reform and middle-class tax reduction championed by the administration has resulted in more take-home pay for 90 percent of wage earners.

A family of four with annual income of $73,000 (the median family income) will see a tax cut of more than $2,058, a 58 percent reduction in federal taxes. Similarly, a single parent with one child with annual income of $41,000 will see a tax cut of $1,304, a 73 percent reduction in federal taxes.

The Trump administration should now extend this success to health care by promoting American innovation and enacting reforms to lower prices now and in the future.  As it relates to life-saving and life improving medicines, this means balancing two goals.

In the short-term, reforms need to ensure that price of drugs remain competitive and access to medicines remains high.

In the long-term, innovation and competition needs to be promoted so that that future prices remain low and the development of new medicines is not obstructed.

The administration has floated renegotiating trade agreements to ensure trading partners are paying their fair share. If Trump chooses to go down this path, he has an excellent opportunity to do so in a renegotiated North American Free Trade Agreement.

Foreign Countries are Free Loading off American Innovation: The U.S. represents one-third of the market for medicines in the developed world, but pays for as much as 70 percent of the costs, according to the President’s Council for Economic Advisors.

Why is this the case?

Because the U.S. is the only free market for medicines. Other countries have numerous price controls and other regulations in place the forcefully lower costs in a way that suppresses access and innovation.  

A report by the White House succinctly lays out the free-rider problem. As the report notes, price controls in foreign countries has suppressed innovation and resulted in artificially higher prices of US medicines:

“…foreign, developed nations, that can afford to pay for novel drugs, free-ride by setting drug prices at unfairly low levels, leaving American patients to pay for the innovation that foreign patients enjoy. Since these nations benefit from the innovations regardless of the costs to Americans, they currently have no reason to raise their own prices and exploit the fact that novel drugs are already invented. If the United States had adopted the centralized drug pricing policy in other developed nations twenty years ago, then the world may not have highly valuable treatments for diseases that required significant investment.”

 

Importation Threatens US jobs and Innovation: Stopping foreign countries from free loading off of U.S. innovation is an important goal, however allowing the importation of price controlled medicines will directly undermine this goal and make our trade deals even worse.

Allowing the importation of price controlled prescription medicines would allow foreign countries to import their price controls into the U.S, which will harm the innovation and research that supports numerous high paying American jobs.

The best trade deal would mean transparent prices with no tariffs, barriers, or price controls.

Because every other country has price controls, Americans are shouldering most of the burden. Currently, it costs more than $2.6 billion and takes 10- 12 years to develop a drug, conduct clinical trials, and obtain Food and Drug Administration (FDA) approval for each drug that makes it onto the market.

Importation Schemes Are Also Potentially Dangerous to Consumers: The Food and Drug Administration has long expressed concern over allowing the importation of medicines. Agency officials have repeatedly stated there is no way to assure the safety, authenticity, or effectiveness of imported drugs, or whether the drugs are from the country the packaging claims it to be.

Attempting to construct such a system would be a bureaucratic nightmare and be incredibly costly to taxpayers. As a result, every Commissioner of the FDA and every HHS Secretary in the past 18 years has opposed allowing importation of price-controlled medicines.