Donald Trump is relying on a silly myth in his latest pharmaceutical industry America First crusade. He is claiming that because other countries don't give our drug industry unchecked patent monopolies, we are subsidizing research for them. The numbers disagree.
According to the National Science Foundation, our pharmaceutical industry spent $62.5 billion on research worldwide in 2013, the most recent year for which data are available. If we increase this by 25 percent to account for growth between 2013 and 2017, we get $78.3 billion. Worldwide sales last year were just under $1 trillion.
If just half of these sales were by U.S. companies, it would translate into just under $500 billion in sales. This would mean that the industry's research expenditures were equal to less than 16 percent of its sales. Prices in other wealthy countries are generally in the range of 40 to 60 percent of the U.S. price. Since the cost of manufacturing and delivering the drugs is generally less than 10 percent of the U.S. sales price, and often less than 1 percent, the industry should easily be able to recover its research expenditures if the whole world paid the regulated prices in other countries rather than the U.S. government imposed monopoly prices.
In other words, there is not really a plausible story on how Trump's efforts to force other countries to pay higher prices will lead to lower drug prices in the United States. On the other hand, insofar as Trump suceeds, it will lead to higher industry profits.