I’m waiting for the March jobs data coming up shortly (I go with 4.5 percent unemployment and 40,000 jobs, also look to slowing wage growth), but I didn’t want to let Trump’s tariff threats on prescription drugs pass unnoticed. This is one of those rare cases where Donald Trump is actually right. We should be paying less for drugs, but naturally Trump is trying to bring lower prices in the most corrupt way possible.

Rather than having a systematic formula for lowering prices, Trump will play “president’s pick” for deciding which companies/countries get hit with which tariffs. This invites the sort of bribery and ass-kissing that has made Trump famous. But the United States should not be paying two or three times as much for drugs as people in other rich countries.

The drug companies are screaming that if they didn’t charge these high prices in the US, they wouldn’t be able to cover research costs. This is mostly crap. The prices they charge in Europe and Canada are still way more than their costs of production, leaving plenty of room for research funding. They might have to spend a bit less on advertising, marketing, and lobbying. 

But there is a grain of truth in the sense that lower prospective returns will have some negative impact on research spending. This problem can be addressed by going 180 degrees in the opposite direction of the Trump administration. Instead of cutting research spending, the government should be increasing it. If the government picks up more of the tab for research, the industry has less need for high drug prices to fund it.

We could take this story much further, as I always advocate. If the government paid for the development costs upfront, then all new drugs could be sold as cheap generics from the day they were approved. Generic drugs typically sell for less than 10 percent of the price of patent-protected brand drugs and sometimes less than 1 percent. 

Drugs are almost invariably cheap to manufacture and distribute; it is the patent monopolies that make them expensive. And if we took the money out by eliminating patent monopoly pricing, we would largely eliminate the incentive to misrepresent the safety and effectiveness of drugs, which is a massive problem in the current environment. 

I write about this issue all the time, but unfortunately few people involved in policy debates value free markets. They just push policies to make the rich richer and say they are the free market.

I should also say a word about the other goal of the Trump tariff threat: having drugs manufactured in the US. There is little reason to see this as an important policy goal. The number of jobs at stake is relatively small, and these are not obviously good-paying jobs in any case.

There is a national security issue, but not the one Trump is posing. Ideally, we would have diverse sources of drug supply so that people are not cut off from the drugs they need due to a war or natural disaster. 

But that does not necessarily mean domestic suppliers. After all, natural disasters hit in the United States as well. In the old days, when Canada and Europe were allies, we might have considered these countries safe sources of supply for essential drugs. However, with Trump making enemies of the whole world, maybe this is no longer the case.