Taxing Medicines Is Bad Medicine

Michael F. Cannon

President Trump has announced he will impose a 100 percent tax (tariff) on imports of both on-patent medicines and active ingredients for domestic production of such medicines. He will lower the tax rate to 20 percent if the manufacturer presents the administration with a plan to relocate the manufacturing to the United States. He will further knock the tax rate down to 0 percent if the manufacturer also submits to the president’s price controls.

The president has determined that the patented medicines and the active pharmaceutical ingredients that go into the domestic production of on-patent medicines “are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.” A foreign spy is a threat to national security. The medicine that cured your kid is not. 

This tax scheme will make US citizens poorer and make critical medicines—for “cancer, rare diseases, autoimmune disorders, infectious diseases, and other critical health challenges”—more expensive and scarce. It will raise prices on many of the 53 percent of on-patent drugs that US buyers purchase from abroad and raise prices for many of the rest by increasing input prices. 

The new taxes will increase prices for insulins, statins (e.g., Atorvastatin, the single most frequently prescribed drug in the United States), some second-generation antihistamines, pain-relieving opioids, pseudoephedrine, monoclonal antibodies (which treat cancer, autoimmune disorders, and other diseases), and antidepressants. The last time the federal government imposed unnecessary restrictions on non-sedating second-generation antihistamines, those restrictions caused airplanes to fall from the sky. 

If producing these drugs and inputs domestically could deliver the same or greater quantity and/​or at the same or lower cost, manufacturers would already be doing so. The fact that the president must force them to do it indicates that domestic production will be costlier and will make these medicines more expensive and scarce. Even where manufacturers fully comply and avoid the administration’s explicit taxes, consumers will still pay a hidden tax in the form of higher prices for medicines and health insurance.