Trump Administration’s Section 301 Investigation into Germany’s Drug Pricing Practices

For over a year, German officials have blocked a significant reform effort by the Trump administration, aimed at addressing international drug pricing issues. Recently, the president’s patience reached its limit.

The White House has repeatedly called on allied countries to abolish price controls on prescription medications. If these nations began paying market rates for medicines developed and produced in the United States, it would ease the burden on American patients, employers, and taxpayers who currently shoulder a significant portion of research and development costs that benefit the globe. Moreover, it would boost U.S. biotech firms and stimulate job-creating research investments.

However, German leadership has been uncooperative. They have even intensified their price control measures by passing legislation that increases obligatory rebates for biotech firms to German insurers.

This move has pushed the Trump administration to initiate a Section 301 investigation into Germany’s pricing policies. This initial measure could enable the White House to enforce legally appropriate tariffs and other trade penalties on Germany unless alterations are made to conform with President Trump’s desired reforms.

The investigation is warranted. However, the administration should extend this approach beyond Germany. Many significant trading partners are guilty of similar unfair pricing practices detrimental to American patients and workers.

Japan, for example, implements artificially low prices for new drugs, continually reducing those prices. France employs ostensibly objective, albeit biased, health technology assessments to justify below-market prices on groundbreaking medicines.

Switzerland ties drug reimbursements to prices in less wealthy European nations and compares them with outdated, less effective treatments. Swiss authorities routinely reassess these reimbursements, often reducing them further.

Canada is deficient in essential regulatory data protections, allowing its firms to replicate U.S. pharmaceuticals. Canada also sets drug prices far below market value, limiting the ability of companies to invest in R&D and deliver life-saving drugs to patients.

For years, both Republican and Democratic administrations have criticized these foreign free-riding practices, which deny U.S. companies hundreds of billions in annual sales. The Information Technology and Innovation Foundation estimated that if all developed countries paid U.S. prices for branded drugs in 2018, drug manufacturers would have gained an additional $254 billion in revenue that year.

That additional income would largely benefit American enterprises, fostering an R&D investment surge, creating numerous new jobs, and resulting in the development of several new drugs annually.

Germany, being Europe’s largest economy with over 83 million residents, is among the world’s largest and most impactful pharmaceutical markets. As such, targeting Germany for the inaugural Section 301 investigation is a logical step.

Enduring Germany’s freeloading any further would prompt other nations to delay reforms, potentially trying to outlast the Trump administration.

More Section 301 investigations are necessary, and quickly. Launching these probes now, while trade discussions continue, would endow U.S. negotiators with the leverage required to compel foreign governments to make concessions.

The Trump administration has already demonstrated the effectiveness of applying such leverage. The United Kingdom consented to double its spending on innovative drugs as a proportion of GDP following threats of a Section 301 investigation.

The administration deserves considerable recognition for taking decisive action instead of expressing dissatisfaction as previous administrations have done.

For the benefit of American workers and patients, this Section 301 investigation must be the beginning, not the end. To maintain its leadership in pharmaceutical innovation, the U.S. cannot continue to permit free-riding by other affluent countries.

Ambassador Jeffrey Gerrish held the position of deputy U.S. trade representative for Asia, Europe, the Middle East, and industrial competitiveness from 2018 to 2020. This article reflects his personal views.