President Donald Trump’s new executive order on prescription drug prices — which he called “one of the most consequential executive orders in our country’s history” — may well live up to the hype, but not in the way Trump intends.
Trump’s announcement of a “most favored nation” policy means the United States government will only pay drug prices equal to the lowest paid by any developed nation. This is what Germany, France, Canada, and the United Kingdom currently do: pay less for drugs than they’re worth. In turn, the United States picks up the tab when it buys up drugs for Medicaid.
We overpay, and it’s easy to write it off as unfair freeloading by Europe, a recurring theme for the Trump administration. But this remedy will not come without its costs, and consumers will feel it down the line.
The Trump administration’s solution for drug pricing is identical to its approach to tariffs. Instead of finding leverage in a target-rich environment to coerce Europe into paying market rates, thus giving American consumers a break, they’ve decided to join the race to the bottom. Senator Bernie Sanders (I-VT) must be quietly pleased to see his socialist dream of price controls go mainstream within the MAGA coalition, even though he has warned that Trump’s drug pricing measure would be better served by legislation.
If it was not clear to Republicans before, it should be now that free market policymaking is on the outs in the second Trump administration.
Let’s be honest about what’s happening. The White House wants to trim federal spending without touching politically sensitive programs like Medicaid. To square that budgetary circle, they’ve decided to force pharmaceutical companies to sell their products to American patients at the same rate they’re sold to socialized healthcare systems abroad.
This move, unthinkable for a Republican administration two decades ago, assumes that America can have the world’s most innovative pharmaceutical sector and also ask “Big Pharma” to forgo the billions in profits they reinvest back into research and development. It’s a fantasy.
The United States is the engine of pharmaceutical innovation. Over half of all new drug patents originate here specifically because America allows firms to see a return on investment. Drug development isn’t like manufacturing sneakers or soda. It’s a high-risk, capital-intensive endeavor where failure is more common than success. A single treatment can take over a decade to develop, cost billions, and then never make it to FDA phase III trials.