Trump unlikely to drive down drug prices substantially: Capital Economics

Investing.com -- President Trump’s aim to slash U.S. prescription drug prices by 50% is unlikely to materialize, according to analysts at Capital Economics.

The firm said in a note that while the potential inflation impact of such a move would be significant, there is little clarity on how the administration intends to implement its goals.

“If President Trump succeeded in his aim of cutting prescription drug prices by 50% ‘almost immediately’, it could subtract more than 1%-point from headline PCE inflation,” Capital Economics wrote in a note published Wednesday.

“There is little indication of how the administration will achieve that aim, however,” said the firm.

Last month, Trump signed an executive order mandating “most-favored-nation prescription drug pricing,” intended to require pharmaceutical firms to sell drugs in the U.S. at the lowest prices charged in other developed nations.

The administration claims, “drug manufacturers deeply discount their products to access foreign markets, and subsidize that decrease through enormously high prices in the U.S.”

However, the firm warned that the more immediate risk to drug pricing may come from another direction: “the administration follows through on its threat to impose tariffs on pharmaceutical imports.”

An influential RAND study cited in the note found that U.S. listed drug prices in 2022 were on average 178% higher than those in other OECD countries, with a staggering 322% premium on branded drugs. “Generic drug prices were 33% lower than the OECD average,” the analysts noted.

Even after accounting for U.S.-specific rebates, which explain “only about 40%-points of the 322% premium,” the discrepancy in pricing is said to remain wide.

“This discrepancy cannot be explained by higher income levels in the US,” Capital Economics wrote, noting the U.S. is a clear outlier even when adjusting for GDP per capita.

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