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By Jeffrey Gerrish
Served as the Deputy U.S. Trade Representative for Asia, Europe, the Middle East, and Industrial Competitiveness from 2018 to 2020
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The developed world has long forced American patients to disproportionately shoulder the cost of pharmaceutical innovation. And President Donald Trump has had enough. He recently put our allies on notice—by launching a formal trade investigation into Germany's unfair drug pricing practices and signaling his readiness to formally investigate other nations if they refuse to change course.
Those investigations are desperately needed. Germany's government is poised to enact an even more aggressive price-setting scheme in the coming weeks, and Japan's leaders are considering similar steps.
The official probe into Germany's drug pricing practices will give Trump administration officials the leverage needed to bring Germany to the negotiating table and compel an end to its freeloading. The administration should now follow suit in Japan.
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The time for warnings has passed. The administration should follow through. An official probe into both countries' drug pricing practices would give federal officials the authority and leverage needed to bring Germany and Japan to the negotiating table—and finally put an end to their freeloading.
Nearly every wealthy U.S. trading partner—including the United Kingdom, France and South Korea—uses government price controls to suppress payments for innovative U.S. medicines. But Germany and Japan are among the worst offenders.
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Under Germany's pricing framework, government authorities assess whether a new medicine provides an "added benefit" over existing therapies and use that determination to set reimbursement levels. In practice, the system routinely benchmarks new drugs against older, lower-cost treatments. The result is predictable: reimbursement levels drift downward, and genuine innovation is undervalued.
Japan's framework is equally punitive. Unlike market-based systems, Japan does not allow innovative medicines to maintain pricing stability over a product's life cycle. Instead, officials ratchet prices downward year after year—even during the patent-protection period.
Under Japan's "market expansion repricing" framework, drugs that achieve broad clinical adoption can face price cuts of up to 50 percent. Cost-effectiveness reviews function as a one-way ratchet: they can trigger additional cuts, but almost never higher prices.
These policies shift the cost of pharmaceutical research and development onto Americans. Indeed, biopharmaceutical companies earn roughly three-quarters of their global profits in the United States, even though the U.S. represents only one-quarter of the world economy.
Fortunately, President Trump recognizes the imbalance—and has already shown how trade policy can help correct it.
His administration recently struck a landmark deal with the United Kingdom. In exchange for avoiding threatened tariffs, the U.K. agreed to double its drug spending over the next decade and reduce the amount of revenue it claws back from companies through rebate mechanisms.
That agreement was a real victory for Americans. It committed a wealthy ally to paying a fairer share of global pharmaceutical R&D costs, reducing the burden that has long fallen on the United States. It also strengthened incentives for domestic research and manufacturing.
But there is still considerable ground left to cover with America's trading partners. Germany and Japan, especially, appear determined to double down on their current policies.
Berlin recently advanced legislation that would expand mandatory manufacturer rebates, impose additional price concessions on innovative medicines and broaden aggressive cost-containment policies. The measure has already cleared the cabinet and now heads to parliament, where a vote could come soon.
Tokyo, meanwhile, continues to push broader reimbursement revisions and tighter post-launch price controls on innovative therapies.
Both governments appear to be betting that the United States is unwilling to impose meaningful trade consequences for discriminatory pricing practices. The Trump administration already proved Germany wrong—and should do so in Japan**.** A Section 301 investigation is the right tool.
Section 301 of the Trade Act of 1974 gives the administration broad authority to investigate foreign economic practices that unfairly burden American industries. Launching these probes allows U.S. officials to formally examine how our allies use price controls to systematically devalue American medicines and build a record supporting corrective action.
If the investigation concludes that these governments have engaged in unfair or discriminatory practices against U.S. companies, the administration could impose retaliatory measures, including tariffs and other penalties. That outcome is avoidable—if Germany and Japan agree to meaningful reforms instead.
U.S. Trade Representative Jamieson Greer has signaled that more agreements modeled on the U.K. deal are within reach. But securing them requires leverage. More formal Section 301 probes into countries like Japan would provide it.
Americans have footed the bill for the pharmaceutical innovation the world depends on for far too long. Washington should use every available trade tool to bring allies like Germany and Japan to the table—and finally end their free-riding.
Ambassador Jeffrey Gerrish served as the deputy U.S. trade representative for Asia, Europe, the Middle East, and Industrial Competitiveness from 2018 to 2020.
The views expressed in this article are the writer's own.
Update 06/26/2026, 05:17 a.m. ET: This article has been updated to reflect the recently initiated Section 301 investigation into Germany.
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