Everyone wants the next medical breakthrough. Few want the bill. The United States pays a disproportionate share of the cost of pharmaceutical innovation, while other wealthy countries hold down medicine prices and count on the research to keep coming.
Yet much of the U.S. policy debate proposes copying their approach: because Americans frequently pay more for patented medicines, it is proposed that Washington should bring U.S. prices down to an international benchmark. That focuses on who pays what while overlooking how those payments fund research. It also treats prices suppressed by foreign governments as a fact of nature, rather than a distortion those governments create.
A better strategy would use reciprocal trade and regulatory agreements to encourage foreign governments to shoulder more of the upfront research costs while removing unnecessary barriers to access. The goal should be more innovation and broader access—not a worldwide price ceiling.
New Medicines, Same American Tab
Pharmaceutical research is risky and expensive. A successful medicine must cover not only the cost of manufacturing each dose, but also the cost of compounds and clinical trials that fail. The economic question is therefore not how much a pill costs to make after approval. It is whether the expected returns across a company’s research portfolio will persuade firms and investors to fund the next round of research.
The United States accounts for about 75% of global pharmaceutical profits, despite representing roughly 5% of the world’s population. The exact share varies with the data and the definition of “profit,” but the imbalance is hard to miss.
That imbalance matters because new medicines benefit patients worldwide. A country that holds down prices in its public health system can reap those benefits while leaving patients, employers, and taxpayers elsewhere to shoulder more of the research bill. Economists call this a free-rider problem: enjoying a benefit while leaving others to pay for it.
Governments help create this problem. Purchasing rules, limits on what health systems will pay based on assessments of a medicine’s value, mandatory rebates, and pricing formulas tied to prices in other countries can keep prices from reflecting demand and the value patients place on better health. These policies may serve legitimate budget goals in individual cases. Together, though, they can distort how much firms invest in research and where that investment goes.
Foreign pharmaceutical price controls can thus function as anticompetitive market distortions (ACMDs). I have described ACMDs as government-backed measures that push prices, competition, and property rights away from competitive-market outcomes. The concept helps pinpoint the problem: a government buyer may use its purchasing power to suppress returns on innovation while counting on other countries to keep the research going. The price gap between an American patient and a foreign patient is only part of that story.
Treating this distortion as a trade issue does not require hostility to trade. A nontariff barrier—a government restriction other than an import tax—can matter just as much as a customs duty when it reduces the rewards from cross-border exchange and investment.
One Price Fits None
The tempting response is to demand a single global price or tie U.S. prices to those negotiated by foreign governments. That approach has at least three serious weaknesses.
First, comparisons limited to brand-name medicines can obscure the gains from rapid generic competition. Generics account for more than 90% of U.S. prescriptions. Include them, and U.S. public programs can compare favorably with those in other developed countries. Selecting a handful of brand-name drug prices and labeling the difference “waste” does not settle the policy question.
Second, price differences can help firms reach more patients. When customers in one country are more sensitive to price, charging different prices can let a manufacturer serve both markets while recovering more of its upfront research costs from those more willing or able to pay. That doesn’t mean every price is efficient or that manufacturers never exploit market power. But it does make a blanket condemnation of international price differences economically shortsighted. A rule that cuts expected global revenue may deliver an immediate political win while discouraging investment in future treatments—especially for diseases with small patient populations or uncertain paths to successful clinical trials.
Third, setting a global price would saddle a central authority with an impossible information problem. It would have to allocate the costs of failed trials, forecast uncertain demand, value gains in survival and quality of life, and predict how prices would affect generic competition and patient access across countries. No authority can calculate all that in advance with precision. The resulting “optimal” price would reflect administrative assumptions and political bargaining. As market-oriented scholarship on innovation repeatedly notes, decentralized price signals are imperfect, but they often convey information no regulator possesses and no model can reliably reproduce.
The choice also involves more than expensive medicines versus cheap ones. Short-term price relief can come at the cost of availability, timely launches, investment in clinical trials, and the development of future treatments. Patients care about today’s out-of-pocket costs, but they also care whether a better treatment will exist five or 10 years from now. Sound policy must account for both.
Assessing Value or Ducking the Bill
The strongest counterargument deserves a fair hearing. Health technology assessment (HTA) helps a public health system judge how much clinical benefit a new treatment adds over existing alternatives. Governments have finite budgets and must divide resources among medicines, hospitals, prevention, and other public needs. Differences in national income, disease burden, and voters’ priorities can justify differences in what public health systems pay. A market-oriented critique should not treat every budget constraint as an ACMD.
The problem arises when a tool for assessing value becomes a way to systematically underpay for it. Persistently low limits on what a system will pay for a given health benefit, rigid spending caps, and large clawbacks—payments manufacturers must return to the government—can keep prices from reflecting demand, inflation, and the value of longer lives. A public buyer’s credible threat to exclude a medicine from the national system can also leave a manufacturer earning far less than the headline price suggests.
Repeat that process across major markets, and the United States shoulders a disproportionate share of upfront research costs while other governments reap the benefits. HTA can inform purchasing decisions, but it shouldn’t become a standing license to suppress the price signals that guide future research and development (R&D).
Britain Picks Up More of the Tab
The December 2025 pharmaceutical arrangement between the United States and the United Kingdom (U.K.) shows how reciprocal bargaining can address the problem. The U.K. agreed to increase the net price its National Health Service pays for new medicines by 25%, beginning in April 2026. It also agreed to reduce and cap the share of revenue manufacturers must repay under the Voluntary Scheme for Branded Medicines Pricing, Access and Growth, setting the rate at 15% for the relevant period. In return, the United States offered tariff commitments for U.K. pharmaceutical exports and other market-access benefits. The official U.K. arrangement and the Office of the U.S. Trade Representative’s announcement describe the bargain.
The arrangement does not prove that a 25% increase is optimal. No negotiated number can do that much work. What matters is how the governments structured the deal: they linked a larger contribution to innovation with concrete gains in trade, access, and the U.K.’s life-sciences strategy. The U.K. could sell the agreement at home as a way to speed access to medicines, strengthen research and manufacturing, and preserve export opportunities. The United States could address persistent free riding without imposing a global price schedule on private transactions.
The effects may extend beyond the two countries. Many wealthy countries set medicine prices by comparing prices abroad, with the U.K. among their benchmarks. Higher U.K. net prices and more generous reimbursement rules could weaken a system that encourages governments to copy the lowest price they find. That offers a more promising path than having Washington set every country’s prices.
A Bigger Bill Needs a Better Deal
A repeatable policy needs more than a demand that foreign governments pay more. Higher contributions are easier to secure—and sustain—when patients, exporters, manufacturers, and regulators gain something in return. Concrete benefits give governments a reason to change politically sensitive purchasing policies. They also build support for keeping agreements in place: firms invest, workers gain opportunities, patients get earlier access, and supply chains become more resilient.
Trade concessions could include tariff exemptions, offsetting concessions in other sectors, and simpler export licensing. Regulatory cooperation could include accepting trusted partners’ inspections before approval, using common electronic application files, and conducting faster joint reviews. These reforms should cut duplicative costs without handing favored firms new privileges. The Food and Drug Administration’s (FDA) mutual-recognition framework explains how accepting a trusted partner’s inspections lets regulators focus limited resources on higher-risk facilities. That supports competition by reducing unnecessary upfront costs while preserving safety oversight.
A unified electronic Common Technical Document (eCTD)—a standard format for regulatory submissions—would likewise reduce country-specific requirements and duplicative filings. The FDA’s eCTD guidance describes the format already used for applications and related submissions. Wider adoption and systems that work together would let regulators share work without weakening scientific review. They would also cut delays and expenses that discourage smaller firms from seeking approval in multiple countries.
The same logic supports expanding Project Orbis beyond cancer treatments and bringing in the European Medicines Agency. Project Orbis lets regulators in partner countries review applications at the same time. Broader use could speed access to promising therapies and reduce repeated regulatory work.
Countries could also agree to waive duplicate testing of production batches when a trusted regulator has already performed equivalent tests. That could speed the release of biologics—medicines made from living cells or organisms—vaccines, and advanced treatments such as gene and cell therapies. Each reform is modest on its own. Together, they can lower the cost of bringing medicines to patients and give foreign governments something tangible to show for a larger contribution to research.
Brussels Can’t Pick Up Everyone’s Tab
The European Union (EU) poses a more complicated challenge. EU institutions cannot simply tell national health systems what to pay. National governments largely control pricing and reimbursement, even as EU institutions coordinate important parts of medicines regulation and industrial policy. A workable agreement would tie benefits to national commitments and coordinate support across governments. Brussels cannot bargain away powers it does not have.
The United States could offer tariff, regulatory, and market-access concessions that take effect as participating EU countries adopt agreed pricing or reimbursement commitments. EU recommendations could help coordinate the commitments, but national governments would carry them out. The goal would be to make participation attractive, rather than impose a single price. A country seeking a stronger life-sciences sector could choose to contribute more in return for easier access to the U.S. market and fewer regulatory hurdles.
This approach reflects a basic lesson of public choice—the study of how incentives shape political decisions. Officials respond to organized groups that stand to gain or bear concentrated costs. A reform that hands a health ministry a bigger bill will face resistance. One that also offers export opportunities, investment, regulatory savings, and earlier patient access can build a broader coalition. Negotiators should work with those incentives. Evidence alone is unlikely to dislodge entrenched arrangements that let organized interests secure government-backed advantages.
Check the Deal’s Side Effects
A market-oriented trade strategy needs safeguards.
First, negotiations should target government-created barriers, not penalize private firms for charging different prices in different markets.
Second, remedies should be proportionate and transparent. Tariffs can provide bargaining power, but consumers and industries that use imported goods pay a price. Tariffs should not become permanent protection from competition.
Third, agreements should preserve competition among manufacturers and avoid subsidies or purchasing preferences for politically connected firms. The goal is to let firms compete on equal terms, not build a new government-backed cartel.
Fourth, policymakers should measure results, not applaud price announcements. They should track how many new medicines reach patients and how quickly; clinical-trial activity; entry by generics and biosimilars (close alternatives to biologic medicines); patient access; supply-chain resilience; and net contributions to R&D. The United States should take seriously evidence that a foreign policy does not materially suppress returns on innovation or that a proposed concession costs more than it delivers. Recognizing the limits of government knowledge is part of the free-market case.
Finally, the United States should resist importing foreign price controls in the name of parity. As I have argued in discussing ACMDs, the remedy is to remove a distortion or negotiate its removal, not copy it at home. A U.S. most-favored-nation policy—one that ties domestic medicine prices to the lowest price set by a foreign government—would entrench the very free riding these negotiations should address. It would also weaken the property rights and price signals that pharmaceutical innovation depends on.
More Cures, Fewer Free Riders
The central policy choice goes beyond high prices versus low prices. Governments can keep suppressing returns on innovation and leave others to foot the research bill. Or more countries can contribute to developing new medicines. That approach leaves room for HTA, public purchasing, and prices that differ across markets. Those tools should guide decisions, not make shifting costs abroad a permanent policy.
Trade agreements can align those incentives. The United States can negotiate higher foreign reimbursement alongside fewer regulatory hurdles. Foreign governments can gain access to medicines, investment, and export opportunities while cutting duplicative requirements. Patients can get treatments sooner, and manufacturers can invest with greater confidence. Together, these gains can fund more cures without forcing prices into a global mold.
The better bargain spreads the research bill—not the price controls.
