The United States has already applied tariffs on imports of European steel and aluminium, but they went into effect on China months ago, and apply to all imports of the metals into the US except for temporary conditional exemptions, expected to expire if changes are not made to other trade agreements, for Canada and Mexico.
While the tariffs are expected to benefit US producers of steel and aluminium, they will negatively impact US users and consumers, particularly automobile companies and other manufacturers. Similar 2002 tariffs were estimated to have cost 200,000 US jobs before they were repealed. The expected retaliatory tariffs expected from the European Union will likely have ripple effects throughout the US economy and the world.
This is no way to conduct business or international relations, especially with friends and allies.
Trump as Dealmaker
The American President Donald J. Trump, who ordered the tariffs on grounds of national security, was elected as a dealmaker, but so far he seems more interested in dictating rather than negotiating. He has unilaterally broken the Trans-Pacific Partnership, the Paris Agreement on climate change, and the Iran nuclear deal, and imposed other tariffs on solar panels and washing machines
The impression left by all these plans is not that he values America above all other nations, but that he does not care about other countries at all. He is living up to his reputation as a disruptor without a thought of the consequences of his actions. Those consequences do not seem to be good for the rest of the world or even the US.
At the same time he has said, “One of my greatest priorities is to reduce the price of prescription drugs“, notoriously more than twice as expensive in the US compared to Canada or the EU, but his plan to do so largely seems to consist of telling the rest of the world to pay more and so support new product development. Tariffs on China actually could hurt biotech by cutting off potential sources of funding.
In fact, the economy that seems most likely to benefit from the tariffs is the one the tariffs and the TPP mainly were intended to constrain: China.
Tariffs and the World Economy
The EU, US, and China are often considered the world’s three largest economies, though the exact order varies. China is sometimes considered in first place, followed by the EU and US (by some investors’ reckoning, China is the second largest economy in the world after the United States), but it has not gotten there by playing fair.
China demands intellectual property as a cost of doing business, and sometimes just steals it outright. China also is responsible for both producing and shipping to the US counterfeit (and cheaper) goods, such as legal (prescription drugs, generics, biosimilars) and illicit drugs (the powerful and deadly opioid fentanyl, responsible for many US overdose deaths).
Trump seems torn between imposing tariffs on Chinese goods, probably initiating a retaliative trade war, and gaining its cooperation to reign in North Korea’s nuclear ambitions.
Recently Trump proposed allowing Chinese telecommunications-equipment maker ZTE to receive shipments of US components again, it was literally out of business without them, rescinding a seven-year ban and other sanctions imposed for legitimate national security violations. Even prominent members of Trump’s own party oppose the new deal.
To many observers, however, a trade war would have collateral damage, including the biopharma and biotech industries, driving up costs and delaying innovations needed for mental illness and substance abuse treatment. Patients in dual diagnosis rehab, whom the president also has pledged to help, would suffer more than China’s economy.
Lowering Drug Prices
Tariffs would not hurt China’s access to such products, drugs, such as insulin and antidepressants, and medical devices, such as MRI machines, artificial joints, and pacemakers, because, according to the US Food and Drug Administration, China provides other nations with these products. The US, by contrast, imports 80% of the active ingredients used in its drugs and 30% or more of the medical devices.
Another key to Trump’s plan to lower drug costs is to stop Big Pharma from blocking the introduction of lower-cost generic and biosimilar medicines. Both generic trade group The Association for Accessible Medicines and advocacy group Patients for Affordable Drugs worry that tariffs could increase the manufacturing costs for all prescription drugs, including generics and biosimilars.
The irony is that Standish Fleming in Forbes asserts that the Chinese prefer US drugs over cheaper local ones because they, too, fear ineffective or dangerous counterfeits. Tariffs could make the Chinese products seem more appealing and affordable at home.
Another of Trump’s actions that he seems to think will lower drug prices is the “Right to Try Act“, which he signed into law on May 30. The law allows some patients to use drugs that have not yet received US Food and Drug Administration approval but have passed the first phase of the approval process.
At the signing ceremony, Trump said the drug companies would announce “voluntary, massive drops in prices” within two weeks, though it was not clear if or how right–to–try would be involved in these drops (maybe a quid pro quo?).
Tariffs will not do anything to lower drug prices and might do the opposite. The best way to lower drug prices is a single-payer universal healthcare system like the rest of the industrialised world. This would allow the US government to negotiate better prices from the pharmaceutical companies. Trump, along with almost all Republicans, now opposes universal health care (though in 1999, Trump said he supported such a plan in a TV interview).
Currently only about half of all Americans support such a plan (slightly more in one poll, slightly less in another), but that is in the face of overwhelming Republican opposition, disinformation, and remaining cultural fears of socialism.
Regardless of their effect on drug prices, tariffs are a bad idea. The way Trump is imposing them seems more like protectionism, and possibly illegal. Europe does not seem willing to engage in piecemeal tariff negotiations. China does not seem worried either.
US Republicans used to be against protectionism and in support of free trade. If President Trump was elected as a negotiator, a dealmaker, he needs to negotiate, get back into the international agreements from which he withdrew. If comprehensive reforms are needed, it is better to do so from the inside. Right now the US is the odd man out.
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