Cabotegravir sodium

Wikimedia /White House The Trump administration’s ever-changing tariffs and Most Favored Nation drug pricing are part of a blizzard of unclear, potentially illegal tactics that leave observers throwing their hands in the air. Never before has the pharmaceutical industry had to consider international trade agreements in its daily business. The matter was settled in 1994, until Donald Trump returned to the White House with a blizzard of confusing policy proposals, from tariffs to Most Favored Nation Drug pricing. This has left the industry in a collective state of confusion. But instead of adding up individually, experts say Trump’s policies are like levers being pulled to achieve a different goal: a trade war. “I had never considered, nor had to consider, the impact of tariffs on pharmaceuticals of any kind on the U.S., or the E.U., or Switzerland, or Canada for that matter, because of the Pharma Agreement ,” Barry Appleton, an international trade lawyer at Appleton & Associatestold BioSpace in an interview. In 1994, World Trade Organization Member states the U.S., European Union., Canada, U.K., Switzerland, Norway, Japan, and Macao all signed a “zero-for-zero initiative” that eliminated tariffs on pharmaceutical products and ingredients for all signatories. The U.S. in 2025 is still a signatory to that agreement. “The U.S. has signed on to this agreement saying that they would not do this,” Appleton said, referring to Trump’s pharmaceutical tariffs. “That agreement is still there, the U.S. is just ignoring it. I can understand why pharma companies don’t know what to do. I can’t believe we’re having this conversation. It’s kind of like Alice down the rabbit hole.” Monet Stanford, senior vice president for health care policy at the financial intelligence firm CFRA, agreed, suggesting that the tariffs are a way to move the broader global trade war forward by leveraging pharmaceutical companies. “The threat of MFN is a tool for a geopolitical trade conversation,” Stanford told BioSpace in an interview. “And that’s where tariffs come in.” Stanford pointed to companies based in Ireland and Switzerland, where corporate tax rates are friendlier than in the U.S., as an example. If these companies don’t want to change their prices to align with MFN, the U.S. might then step in and place a tariff on those countries instead. “[A company that] previously exported a drug on a 12.5% corporate tax rate now has a tariff slapped on top of that. It basically equals what the new U.S. corporate tax rate is. Does that change your calculus as a pharma?” Stanford asked. Corporate tax havens like Ireland are critical to pharmaceutical trade policy. There, large pharma companies can shield themselves from more onerous corporate tax rates in the U.S., even making manufacturing cheaper for those companies. Novo Nordisk’s Wegovy or Eli Lilly’s Zepbound are so popular, for instance, that the manufacturers have been loading planes with $36 billion worth of peptides and hormones that take off from Ireland bound for the U.S. in an effort to stockpile cheap ingredients before tariffs potentially hit. At this point, the U.S.’s trade deficit with Ireland is second only to China’s. I can understand why pharma companies don’t know what to do. I can’t believe we’re having this conversation. It’s kind of like Alice down the rabbit hole. Barry Appleton, Appleton & Associates If anything, according to observers like Stanford and Appleton, the threat of tariffs and MFN pricing might, at best, induce companies to alter their tax practices, or at worst, unilaterally stop selling critical drugs in nations that desperately need them. In late July, Trump sent letters to 17 Big Pharmas like Lilly, Pfizer and AbbVie, asking them to extend MFN drug pricing to Medicaid recipients. That demand is hard to understand, according to Stanford, “because there’s already the best price in Medicaid.” Medicaid has a Best Price Rule in place where recipients get the lowest possible price for a drug. Instead, it may end up harming patients in other countries. For instance, in a scenario posed by Appleton, if GSK, one of the recipients of Trump’s 17 letters, decided that it did not want to reduce the price of its HIV PrEP drug cabotegravir, it could withdraw that drug from countries like Rwanda, where the drug is offered for free , in order to avoid lowering its prices in the U.S. Experts believe there are other more realistic and applicable policy avenues that the administration could pursue to more directly target pharma companies and drug prices. Brad Setser, a senior fellow at the Council on Foreign Relations, told BioSpace in an interview that a better, more realistic target would be to close the tax incentive for “roundtripping,” the practice of pharma companies routing revenue from sales of products in the U.S. through internationally-based subsidiaries, essentially offshoring profits and avoiding U.S. corporate taxes. Removing that loophole would potentially reshore billions in lost tax revenue back to the U.S. A group of Democratic senators introduced a bill in June to close that loophole, though it hasn’t advanced. “That would have been a very sensible thing to do from the Trump admin’s perspective,” Setser said, “I was disappointed that it wasn’t a part of the [One Big Beautiful] tax bill.” With so much uncertainty, some companies are already making moves in response, even as significant questions remain as to the legality of these tactics and enforcement capabilities. Eli Lilly announced on Aug. 14 that it would raise prices on its drugs in the EU in response to MFN drug pricing in the U.S., even though doing so wouldn’t lower or even effect prices in the U.S. It’s becoming a battle between nations, where the U.S. is acting as an aggressor, using the country’s inherent advantage as a large, wealthy market to pressure pharmaceutical companies and, in turn, other nations. “It’s a type of ‘policy laundering,’” Appleton said, “where we’re essentially assaulting other countries’ drug prices. Yes, the US may get lower prices, but the cost will be to create unbelievably bad relations with a lot of countries all over the world.”