As Americans prepare for summer getaways, Washington is turning up the heat on family budgets. In August, the federal government is set to institute tariffs—read “taxes”—of up to 100 percent on prescription drugs. The scheme’s architects hope it will pressure companies to manufacture more medicine on U.S. soil. Although a laudable goal, the punitive trade tactic is ill-suited for the job.
As these pages have noted, Americans pay American tariffs—whether on cars, food, or medicine. Populist Republicans like to argue that foreign countries foot the bill while Americans enjoy the upsides. But an analysis from the Congressional Budget Office confirms that to be a myth: consumers end up paying at least 70 percent of the financial burden.
That’s why aggressive tariffs are historically unpopular among Americans. Eighteenth century colonists were up in arms over Britain’s Townshend Acts because it placed import taxes on common products like tea and paper. The anger over the resulting price hikes is credited with fueling the American Revolution. Fast forward to 1930 and the Smoot-Hawley tariff extended the economic pain of the Great Depression.
The protectionist tool is also not effective. The 2018 tariffs imposed on steel is an informative case study. Although the policy did temporarily save some steel industry jobs, each position is estimated to have cost roughly $900,000. Tariffs on washing machines tell a similar story. U.S. consumers collectively paid an extra $1.5 billion for these appliances in return for 1,800 manufacturing jobs.
Tariffs clearly deliver far less value than they demand in return. But this isn’t to say the national security rationale behind the backwards economics is unfounded. The threat of China looms over America’s drug supply chain.
As highlighted in a March congressional hearing, China is cornering the market on American medicines. Select Committee on China Chairman John Moolenaar (R-MI) noted that 83 of the top 100 generic drugs taken by Americans rely on foreign ingredients—much of which come from China. It’s a chokehold that America dearly needs to wiggle out of before the diplomatic relationship further sours.
During a trade dispute last year, China cut off the supply of rare earth materials that the West relies upon for smart phones and defense systems. Beijing later weaponized trade by halting U.S. soybean shipments, which squeezed American farmers. Imagine the pain a similar embargo on pharmaceutical ingredients could inflict.
The question isn’t whether the U.S. should foster a more robust medicine supply chain, it’s how best to accomplish it.
The Chinese may juice its domestic industry with massive government subsidies, but the U.S. has a more powerful tool: free market capitalism. America is home to an established private sector ecosystem that includes the most innovative companies in the world. The government simply needs to clear the way of tax and regulatory roadblocks.
Steps are already being taken to improve U.S. economic attractiveness—notably the tax cuts package Congress passed last year. The resulting tax certainty is permitting existing domestic manufacturing hubs to increase output and diversify American-made treatments, therapies, and vaccines. In May, a $300 million expansion plan for medicine production was announced for the U.S. territory of Puerto Rico.
Policymakers should also not discount the regulatory side of the equation. Spools of government red tape have been slashed over the past year that streamline construction of new factories and R&D centers. But executive orders have short shelf lives. As fresh projects break ground, Congress needs to codify these improvements before a future leader reverses them.
Slapping restrictive tariffs on medicine is a poor fix to a legitimate problem. Washington officials should seek a second opinion before the import tax goes into effect this summer. In our free market, the carrot better effectuates economic expansion than the stick—and it is often cheaper.
Dr. Tom Price served as the 23rd U.S. Secretary of Health and Human Services and is a former member of Congress from Georgia.
