Trump Is Correct: European Nations Must Pay More for Innovative Drugs
European nations have long been free-riding off U.S. investments in biopharmaceutical innovation. For instance, one Ernst & Young study found that high-income European countries spend roughly half of what the United States does on innovative medicines. At Davos this week, President Trump again excoriated European (and other high-income) countries for failing to pay their fair share for innovative medicines, going so far as to say that “Europe has been ‘screwing’ the U.S. on drug prescriptions for years.”
The notion that Europe isn’t paying enough for drugs is certainly correct. Just last year, France spent 72 percent, Italy 70 percent, Switzerland 66 percent, and the Netherlands 29 percent on pharmaceuticals per capita compared to the United States, when adjusted for gross domestic product (GDP). That concords with a 2023 ITIF study that used the RAND Corporation’s International Prescription Drug Price Comparison report to examine prescription drug price differences between the United States and 32 Organization for Economic Cooperation and Development (OECD) countries. Of the 32 OECD countries with available data, ITIF found that all had lower prescription drug prices than the United States, which historically has not imposed price controls on its pharmaceutical sector. Even after adjusting for GDP per capita, 30 OECD countries still had lower prescription drug prices than the United States.
The Trump administration has taken several steps to push key trade partners—especially European nations—to raise the prices they pay for innovative drugs. The administration has achieved the biggest success thus far with the United Kingdom. Last December, the United States and the United Kingdom agreed to a deal under which the United Kingdom will receive tariff relief in exchange for raising the net price it pays for new U.S. medicines by 25 percent. Under the deal, UK-made medicines, drug ingredients, and medical technology would be exempted from Section 232 sectoral tariffs.
Similarly, in June 2025, President Trump directed the United States Trade Representative’s Office (USTR) to work toward eliminating foreign government policies that devalue American innovation and other practices, such as intellectual property barriers that unfairly disadvantage U.S. companies and workers. This built upon USTR’s May 2025 Special 301 report which recognized that “pricing and reimbursement systems in foreign markets that do not appropriately recognize the value of innovative medicines and medical devices present significant concerns.” The report called on countries to “appropriately recognize the value of innovative medicines … so that trading partners contribute their fair share to research and development of new treatments and cures.” In December 2025, U.S. Trade Representative Jameison Greer stated that, “The Trump Administration is reviewing the pharmaceutical pricing practices of many other U.S. trading partners and hopes that they will follow suit with constructive negotiations.”
In Davos yesterday, President Trump claimed he’d prevailed upon French President Emmanuel Macron to get France to raise the prices the country pays for innovative drugs, although the French government later rebuffed that assertion. Nevertheless, it’s likely the Trump administration is actively seeking similar drug pricing deals like the one it cut with the UK.
These efforts are important because European countries’ failure to pay for innovative drugs means they’re certainly not pulling their weight in terms of global innovation. For instance, ITIF found that drug price controls in non-U.S. OECD nations reduce biopharmaceutical research and development (R&D) by more than $56 billion per year. This lack of adequate European funding deprives the world of 25 new drugs annually. Another study found that had foreign price controls been adopted in the United States from 1986 to 2004, 117 fewer new medicines would have been produced for worldwide use. A different study found that shifting to a European pricing model in the United States would lead to shorter, less healthy lives for Americans, adding up to a loss of trillions of dollars. Conversely, eliminating price controls in OECD countries would lead to a 12 percent increase in R&D and the development of at least 13 new drugs per year.
Further, many of these countries’ price controls contribute to a higher U.S. pharmaceuticals trade deficit than would otherwise be the case since they refuse to pay what they should for U.S. drug exports. For instance, in 2024, the United States ran deficits of $45.8 billion in pharmaceuticals trade with Ireland; $15.8 billion with Switzerland; $9.4 billion with Germany; $8.4 billion with Italy; and $7.7 billion with Belgium. Much of this imbalance stems from the fact that drug exports from these countries generally earn market prices in the United States while reciprocal U.S. pharmaceutical exports encounter stringent drug price controls.
Yet while the Trump administration wants partner countries to invest more for innovative drugs, it’s unfortunately taken the precise opposite approach in the United States. To wit, the administration has issued an executive order and called for a “Great Healthcare Plan” that would cut drug prices by directing the Secretary of Health and Human Services (HHS) to establish a mechanism through which American patients can buy their drugs directly from manufacturers who sell to Americans at a “Most-Favored-Nation” (MFN) price, or to otherwise have HHS “propose rules that impose most-favored-nation pricing.” Unfortunately, this approach will be even more damaging than the existing drug-price controls that the Biden administration implemented under Medicare as part of the Inflation Reduction Act (IRA). Price controls have already led to significant declines in U.S. biopharmaceutical innovation, yet whereas the IRA only applies to a selected list of drugs, Trump’s MFN proposal would apply to virtually all medicines.
Forgotten in all of this is that innovative drugs produce tremendous value for society. For instance, one study found that, from 1990 to 2015, pharmaceuticals accounted for 35 percent of the increase in U.S. life expectancy. Moreover, newer drugs are not only cost-effective when considering direct medical benefits such as increased life years, but they also produce significant indirect social benefits. For example, Lichtenberg found that, from 1997 to 2010, “the value of reductions in work loss days and hospital admissions attributable to pharmaceutical innovation was three times larger than the cost of new drugs consumed.”
President Trump is correct to call out European free-riding and work to prevail upon other nations to spend more on innovative medicines that deliver tremendous improvements in the quality and longevity of life. But the United States should not be importing shortsighted foreign drug prices into the U.S. market, instead, as Darius Lakdawalla notes, U.S. policy should be seeking “to export rational, forward-looking prices overseas.”
