Will Trump's Global Lowest Price Policy Work?

On May 12, U.S. President Donald Trump signed an executive order on drug prices. Is this his tactic to shift public attention, or is it a "wake-up call" for the pharmaceutical industry?

At 8:51 AM local time on May 12, President Trump held a press conference with Health and Human Services Secretary Robert F. Kennedy on the issue of drug prices. On the evening of May 11, Trump announced on his social media platform "Truth" that he plans to implement the "Most Favored Nation" policy, significantly reducing U.S. prescription drug prices by 30% to 80%. He later clarified on "Truth" that the price reduction would be at least 59%.

The Trump administration believes that, for a long time, prescription drug prices in the U.S. have been higher than in other developed countries, sometimes as much as five to ten times more expensive for the same drugs. Notably, President Trump proposed a similar policy during his first term, which was formally introduced at the end of 2020 but later ruled invalid by federal courts and was repealed by President Biden in 2021.

Despite this, Trump’s reiteration of this policy shows his determination to lower drug prices in the U.S. Furthermore, this time, he has chosen to refer to the global lowest price, as opposed to the previously discussed lowest price among OECD countries, which analysts say differs drastically in price.

The Trump administration believes that this move will bring three benefits: First, it will alleviate the burden of purchasing medication for the American public; second, it will save the government hundreds of billions of dollars; and third, it will ensure that American taxpayers no longer bear the “unfair” burden of funding global research and development costs.

Following Trump’s comments, U.S. pharmaceutical stocks did not seem to be affected and even rose. Some analysts believe this indicates that the policy might not pass in the U.S. However, it caused a sharp decline in Hong Kong pharmaceutical stocks. Against the backdrop of the U.S.-China-Japan Geneva trade talks joint statement, the Hang Seng Technology Index rose by 6%, the Hang Seng Index rose by over 3.5%, but the Hang Seng Biotechnology Index dropped by 2.65%.

At the same time, the pharmaceutical industry quickly retaliated. Stephen Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), stated in a statement, "This foreign pricing-first scheme is a bad deal for U.S. patients. Introducing foreign prices into the U.S. will cut billions from Medicare but will not guarantee better access to drugs or help patients. It will also jeopardize the billions of dollars our member companies plan to invest in the U.S., making us more reliant on China for innovative drugs."

Industry Opinions and Possible Reshaping of the Pharmaceutical Landscape

This policy is expected to significantly impact the profitability of U.S. pharmaceutical companies and could affect their global strategies. The implementation of this policy will again face strong opposition from the U.S. pharmaceutical industry, which argues that such drastic price controls will severely damage innovation and R&D investment. A senior executive who worked for many years in multinational pharmaceutical companies, responsible for product sales in China, stated, "The U.S. can lower prices, but such a drastic reduction is astonishing and could actually be negotiated." This executive noted that the U.S. has always been a key strategic market for global pharmaceutical companies. Many multinational companies have achieved innovation and steady development through the substantial profits from U.S. drug prices and the relatively free pricing mechanisms. However, with this executive order, multinational companies may reduce their emphasis on the U.S. market. He recalled, "In the past, we used to say we could give up any market, but the U.S. was one market we couldn't afford to lose. Now, that situation is changing."

Dr. Yang Weiping, Chairman and President of German pharmaceutical company Fresenius Kabi China, believes this is a major event for the U.S. pharmaceutical industry and will reshape the global pharmaceutical landscape. It has similarities with China’s recent price reductions and centralized procurement policies.

Industry experts analyze that if the U.S. immediately reduces drug prices by 30% to 80%, revenue from brand-name drugs will drop significantly, and companies’ profitability will decline. This may lead to a reduction in the scale of innovation, layoffs, or delays/cuts in research projects, with business focus shifting to international markets. Smaller companies could face a survival crisis, triggering mergers and acquisitions or bankruptcies, while the scale of business expansion deals could shrink.

Globally, countries with historically lower drug prices may raise their prices, increasing the burden of foreign drug costs. Manufacturers may limit supplies to poor countries, exacerbating global health inequality. Reduced U.S. drug demand could disrupt global distribution networks and cause drug shortages. Pharmaceutical companies may adopt tiered pricing strategies or exit unprofitable markets, and government actions could damage global supply chains and diplomatic relations.

However, the executive also believes that the impact on the U.S. pharmaceutical industry largely depends on whether the executive order is implemented and to what extent. Currently, the U.S. still has policies that encourage and support innovation, though these may be weakened by this new policy.

Impact and Response of China's Biotechnology Industry

In this context, China's biotechnology industry might face growth opportunities. The former multinational pharmaceutical executive believes that this depends on whether China can effectively improve its innovation environment and system. If Chinese innovative drugs can receive more policy support and the innovation environment continues to improve, with the potential of the world's second-largest pharmaceutical market, more multinational companies will be attracted to invest, conduct R&D, and promote product launches, while also drawing in more talent and capital to leverage technological advantages.

Chinese generic drugs and biosimilars are cost-effective. The executive order may make Chinese drugs more competitive in the U.S. market, increasing market share and revenue. If China can enter the U.S. market at a lower price, it may gain a competitive advantage.

Under the pressure of lower drug prices in the U.S., domestic innovation-driven biopharmaceutical companies in China might face more overseas licensing opportunities. Foreign pharmaceutical companies, in response to pricing challenges, will seek cost-effective innovative drugs, and China’s improved R&D capabilities and product portfolio are attracting attention from international giants. This executive order may also encourage Chinese biopharmaceutical companies to strengthen R&D, improve product quality, and accelerate industry transformation. Furthermore, it could prompt some U.S. biopharmaceutical companies to shift investments toward China.

Biden vs. Trump on Drug Price Policies and Trump's "Bypassing Congress" Reasons

In August 2022, Biden signed the Inflation Reduction Act (IRA). On May 5, 2025, Trump announced his plan to sign an executive order implementing the "Most Favored Nation" policy to reduce U.S. prescription drug prices. The two policies differ in several aspects.

The IRA was passed by Congress and signed into law by Biden after voting in both chambers. The provisions have legal backing and stability. The act grants Medicare the right to negotiate drug prices, starting with 10 high-cost drugs in 2026 and increasing to 20 by 2029. However, there are restrictions on negotiable drugs, and small-molecule drugs and biologics must meet certain FDA approval criteria before being eligible for negotiation. The price negotiation will also be delayed. The "Most Favored Nation" policy is an executive action by the President and does not require congressional approval, but it may face challenges from the pharmaceutical industry and could be repealed by future administrations. It mainly targets drugs under Medicare Part B, such as cancer infusion drugs, with a limited scope of affected drugs.

In terms of price-setting mechanisms, the IRA involves negotiations between Medicare and pharmaceutical companies, and failure to negotiate could result in a rebate penalty for the companies. The Most Favored Nation policy directly uses the lowest foreign prices, bypassing negotiations with pharmaceutical companies. In terms of policy goals, the IRA, in addition to lowering drug prices, also addresses inflation, clean energy investments, and tax reforms, making it a broader policy plan. The Most Favored Nation policy focuses primarily on reducing drug prices for U.S. consumers and lowering government Medicare expenditures. The implementation timelines also differ, with IRA drug price negotiations beginning in 2026, while the Most Favored Nation policy’s implementation timeline and details remain unclear and face numerous obstacles.

Trump did not seek to pass a law to lower drug prices through Congress because the issue involves complex conflicts of interest between the pharmaceutical industry and government fiscal balance. Previous attempts to push such a bill through Congress faced significant resistance. Trump’s first term similar "Most Favored Nation" policy was introduced at the end of 2020, but was later ruled invalid by federal courts and repealed by President Biden in 2021.

Compared to the last price reduction, Trump believes this time will succeed because, first, there has been long-standing public concern over high drug prices, and fulfilling his campaign promise can garner political support, relieve public discontent, boost his standing, and put pressure on the courts and Congress. Second, by instructing the Secretary to investigate and collect data, he can address the procedural deficiencies of the previous attempt, strengthen the legal foundation of the policy, and reduce the chance of it being overturned in court. Third, by using executive power, he bypasses Congressional opposition and can directly push forward the drug price reduction policy, achieving results that were previously difficult to accomplish.

On January 20, 2025, Trump will repeal some of Biden's executive orders, but many of Biden's drug price reforms are embedded in the IRA and are unlikely to be overturned in the short term. On May 11, Trump said his executive order would only apply to certain drugs under Medicare Part B, and the actual impact remains to be seen. Many experts believe the executive order could face legal challenges, with the pharmaceutical industry likely to file lawsuits. It is understood that of the nine U.S. Supreme Court justices, six are Republican-nominated, three of whom were appointed by Trump, and three by the Democrats.

The White House spokesperson stated that the Trump administration is prepared to face legal challenges and emphasized its determination to "break the era of pharmaceutical industry super profits." The Wall Street Journal pointed out that whether the policy will be implemented remains uncertain, and its final outcome may depend on the Supreme Court's ruling. Many analysts believe that even if the policy is implemented, its specific impact will only be fully realized in the second half of 2025.

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