This morning, the America First Policy Institute released an issue brief highlighting a genuine problem—the rest of the world free-rides on American pharmaceutical innovation. American consumers bear most of the global costs associated with drug research and development and so subsidize lower prices abroad.
President Trump is already working to address similar foreign freeloading—most notably by calling on our European NATO allies to contribute their fair share toward collective defense. He can, and should, apply the same firm approach to pharmaceutical pricing.
Much of AFPI’s analysis is correct. It accurately identifies foreign freeloading as detrimental to American patients and global research efforts.
However, AFPI’s proposed solution—a “most-favored-nation,” or MFN, pricing policy that would set drug prices in Medicare based on the lowest prices paid in countries like Canada, the United Kingdom, and France—is fundamentally misguided.
For starters, the MFN approach overlooks the complex dynamics of pharmaceutical pricing overseas. European countries use aggressive, government-backed negotiations to secure deep discounts from drug manufacturers.
These “negotiations” often come with implicit and explicit threats. As just one example, if a manufacturer refuses to sell its products at dictated prices, a European government could retaliate by revoking its patents under Article 5 of the Paris Convention for the Protection of Industrial Property, which allows compulsory licensing when a patent holder declines to sell its product in a market.
Plus, it isn’t as if U.S. drug firms can simply band together and leave Europe if the continent refuses to pay more for drugs. Any coordinated efforts would be viewed as cartel-like behavior and trigger antitrust penalties under European Union competition laws.
Given these constraints, pharmaceutical companies are effectively forced to accept artificially low prices abroad. Expecting American firms to respond to MFN by raising prices overseas simply isn’t realistic.
In other words, MFN wouldn’t fix freeloading. But it would worsen the impact of European price controls on American innovation and investment.
Adopting an MFN policy would effectively import Europe’s price controls into our own healthcare system—and thereby jeopardize America’s global leadership in pharmaceutical innovation. Developing a new drug currently costs about $2.6 billion, takes 10 to 15 years, and only about 12% of drugs entering clinical trials eventually reach patients.
Despite these challenging odds, more than 60% of the world’s innovative medicines are developed in the United States.
If the MFN proposal becomes policy, critical investments in drug research and development could sharply decline. A National Bureau of Economic Research study estimates that reducing U.S. pharmaceutical prices by 40% to 50% could lead to a 30% to 60% reduction in research initiatives.
Similarly, research from University of Connecticut economist Joseph Golec found that America would have lost more than 100 new medicines from 1986 to 2004 under European-style price controls.
Beyond limiting future discoveries, MFN pricing would delay access to new medicines already in development. The majority of new drugs first debut in the United States. Pharmaceutical firms prioritize the U.S. market precisely because it fairly compensates them for their substantial research and regulatory costs before they face markets with capped prices abroad.
Lowering American prices to match Europe’s artificially low prices would intensify global freeloading rather than reduce it. Foreign governments would continue paying little, while U.S. research budgets would shrink.
Competitors like China are rapidly expanding their biotechnology capabilities. MFN pricing risks shifting global medical innovation leadership from America to China.
The United States possesses numerous trade tools and diplomatic levers to compel foreign countries to pay prices that reflect the true value of American-developed medicines. We need to use them.
Price controls don’t work, whether they’re devised domestically or imported from abroad. The Trump administration must confront foreign governments directly to end pharmaceutical freeloading. Doing so will protect U.S. innovation, preserve patient access to groundbreaking treatments, and maintain America’s unmatched global leadership in medical research.
