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Can the drugs industry provide insight into Trump’s trade war?

Last Friday marked the official start of Donald Trump’s trade war, as tariffs on $34bn of Chinese goods came into force.

Garry white employee

Garry White

in Features


Last Friday marked the official start of Donald Trump’s trade war, as tariffs on $34bn of Chinese goods came into force. Investors are nervous about any escalation and the impact this will have on markets, but what has happened in the pharmaceutical industry over the last few weeks could provide some reassurance.

Those hoping that the current trade spat will turn out to be more bluster than action will certainly have taken note of last week’s comments by US Commerce Secretary Wilbur Ross. He said there's no downside level for the stock market that would alter the way the administration approached the current trade issues, as the “president is trying to fix long-term problems that should have been fixed a long time ago.” However, his big fix for the US drugs industry – unveiled just six weeks ago alongside other strong words – has not quite lived up to its presidential hype.

Big pharma is “getting away with murder” and price gouging Americans with high drugs prices, Donald Trump thundered during his presidential campaign. This is a theme he has returned to on a number of occasions. In his State of the Union address in January, the tough talk continued. “You’ll be seeing drug prices falling very substantially in the not-too-distant future,” he said, “and it’s going to be beautiful.”

Six weeks ago Trump unveiled his response – American Patients First – a plan which he claimed would result in companies announcing big price drops in the cost of medicines. Yet, this week, Pfizer increased the prices of 100 drugs for the second time this year in a move that appears to be in defiance of the White House.

Pfizer, the largest American drugs group by market value, is upping the average price of its drugs by 9%. This followed an average price increase of 10% in January. The changes impact 10% of the drugs in Pfizer’s portfolio but the company pointed out that it had also decreased the price of some treatments. The overall trend, however, was firmly in one direction – prices continue to rise at a multiple of the price of inflation. Also, some drugs, such as eye-pressure treatment Xalatan, erectile dysfunction pill Viagra and anti-smoking medicine Chanix, have now seen double-digit price increases this year. The company also says in its defence that the list price of a drug does not reflect the actual price, which often includes a discount. It’s not only Pfizer that has dismissed the president’s words. According to Wells Fargo, there were 104 price increases in June, with an average jump of 31.5%. This followed 48 increases in May. Other drug companies are expected to defy the president and up their prices in coming weeks.

Drug pricing became a hot topic after pharma investor Martin Shkreli raised the price of lifesaving anti-parasitic drug Daraprim from $13.50 a pill to $56 each after he bought the rights in 2015. “This is a capitalist society, a capitalist system and capitalist rules,” he famously stated. This helped him be crowned the “most hated man in America” ahead of his spectacular downfall. He is currently serving seven years in Fort Dix prison in New Jersey for wire fraud. Although this was an extreme and uncommon example of rapacious pricing, it highlighted a significant issue.

Trump appointed Alex Azar, a former executive of drugs group Eli Lilly, as his Health and Human Services Secretary. This poacher-cum-gamekeeper stated that “bold action” will allow patients to choose lower-priced medications, including generics, and increase market competition. However, after the proposals were finally announced, House Minority Leader Nancy Pelosi accused Donald Trump of breaking his promise to Americans by not allowing Medicare, the government-funded healthcare provider, to negotiate lower drug prices from pharmaceutical companies. This concession was arguably a big win for the industry, which argues that high drug prices are an unfortunate cost of the innovation needed to bring new medicines to market.

But can this drugs issue tell us anything about the current trade war? Does it imply that investors have little to worry about because Donald Trump is a big-talking president who doesn’t really follow through?

The pharmaceutical industry is also one of the biggest spenders on Capitol Hill. Anger at lobbyists and special interests that formed “the swamp” was a focal point of the presidential campaign, with Trump promising it would be “drained”. However, lobbyists appeared to secure a win on the Medicare negotiation front – at least for now.

Surprisingly, the social-media president is yet to comment on the Pfizer news on Twitter, despite attacking Harley-Davidson on a number of occasions after the company said it would start manufacturing its motorcycles outside the US to dodge tariffs. This could be read as an indication of the relative importance of the issues to the president’s agenda.

However, as much as it may pain many Trump critics, the president is not stupid. The administration knows that there will be a significant cost if he pursues this trade agenda. US farmers will feel pain through soya bean retaliation, and any car tariffs on Europe will hit Trump-voting states too. Germany’s three biggest carmakers have facilities in Alabama, South Carolina and Tennessee and there could be tens of thousands of jobs lost in these states if he pursues his EU car war. Investors can only hope that the businesses that will be impacted are as good at lobbying as the pharma industry.  

A version of this article appeared in Friday’s Daily Telegraph.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.


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