Frankfurt School of Finance & Management research shows Trump's drug pricing cap could shrink US economy and reduce innovation
FRANKFURT AM MAIN, Germany , June 24, 2025 /CNW/ -- U.S. President Donald J. Trump issued an Executive Order on May 12, 2025 , directing the Department of Health and Human Services to communicate "Most-Favored-Nation" price targets to pharmaceutical manufacturers. Under the order, U.S. patients must pay no more than the lowest price available for the same drug in any comparably developed nation.
Trump's Executive Order risks reducing the health sector's amount of funding for innovation, and thus negatively impacting U.S. GDP, warns health economist, Afschin Gandjour, from Frankfurt School of Finance & Management.
Professor Gandjour explores the economic trade-offs of international reference pricing. He states that by lowering allowable prices without addressing structural inefficiencies, Trump's order risks reducing the funds available for innovation, employment, and capital investment domestically.
Focusing on brand-name drugs (which make up 80% of drug spending), Professor Gandjour found that around 16% of industry revenues are reinvested in domestic R&D and capital projects. With U.S. brand-name drug spending estimated at $482 billion, and assuming 50% of that spending goes to domestically manufactured drugs, about $241 billion accrues to the local economy.
However, 41% is absorbed by intermediaries – providers, insurers, and pharmacy benefit managers – with $142 billion reaching manufacturers. Of this, approximately $23 billion is reinvested in the U.S. driving a total GDP contribution of $46 billion, based on the assumption that for every dollar reinvested, an additional dollar is generated through activity before and after production.
Professor Gandjour's analysis suggests that a significant price cut under the new Executive Order would likely decrease reinvestment in innovation and GDP growth. Although Americans pay significantly higher drug prices, a substantial amount remains within the U.S. economy. Inefficiencies come from features of the U.S. health system itself – including the high degree of financialization in the pharmaceutical sector and intermediaries that absorb a large portion of profit.
Even if high pharmaceutical prices stimulate the U.S. economy through reinvestment and multiplier effects, the immediate financial burden falls disproportionately on patients. This is primarily a problem of how health expenditures are financed, not of drug pricing.
"Policy responses focused solely on international reference pricing may overlook deeper inefficiencies in both the allocation and financing of pharmaceutical spending. The real challenge is not determining how high drug prices should be, but how effectively spending is translated into domestic value creation," says Professor Gandjour.
About Frankfurt School of Finance & Management
Frankfurt School of Finance & Management (FS) is a private business school accredited by AACSB, AMBA and EQUIS. The university focuses on finance, economics and management, and offers Bachelor, Master, MBA and doctoral programmes as well as executive education courses and seminars for professionals and trainees. Frankfurt School is regularly placed among the top performers in major university rankings. For example, it ranks 41 st in the latest Financial Times (FT) European Business School Ranking and is listed as the best German business school in the Times Higher Education Global University Employability Ranking. In the latest UTD Top 100 Business School Research Rankings Frankfurt School has also secured the top position in Germany . In addition to the main Frankfurt campus, Frankfurt School has study centres in Hamburg and Munich and is globally connected with over 125 partner universities. www.frankfurt-school.de
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Canada Standard
an hour ago
- Canada Standard
Canada rescinds tax on US tech firms in hopes of Trump trade deal
Canada will rescind taxes impacting US tech firms that had prompted President Donald Trump to retaliate by calling off trade talks, Ottawa said Sunday, adding that negotiations with Washington would resume. The digital services tax, enacted last year, would have seen US service providers such as Alphabet and Amazon on the hook for a multi-billion-dollar payment in Canada by Monday, analysts have said. Washington has previously requested dispute settlement talks over the tax -- but on Friday Trump, who has weaponized US financial power in the form of tariffs, said he was ending trade talks with Ottawa in retaliation for the levy. He also warned that Canada would learn its new tariff rate within the week. But on Sunday, Ottawa binned the tax, which had been forecast to bring in Can$5.9 billion (US$4.2 billion) over five years. Finance Minister Francois-Philippe Champagne "announced today that Canada would rescind the Digital Services Tax (DST) in anticipation of a mutually beneficial comprehensive trade arrangement with the United States," a government statement said. It added that Trump and Canadian Prime Minister Mark Carney "have agreed that parties will resume negotiations with a view towards agreeing on a deal by July 21, 2025." There was no immediate comment from the White House or Trump. US Treasury Secretary Scott Bessent told CNBC on Friday that Washington had hoped Carney's government would halt the tax "as a sign of goodwill." Canada has been spared some of the sweeping duties Trump has imposed on other countries, but it faces a separate tariff regime. Since returning to the White House in January, Trump has also imposed steep levies on imports of steel, aluminum and autos. Canada is the largest supplier of foreign steel and aluminum to the United States. Last week, Carney said Ottawa will adjust its 25 percent counter tariffs on US steel and aluminum -- in response to a doubling of US levies on the metals to 50 percent -- if a bilateral trade deal was not reached in 30 days. "We will continue to conduct these complex negotiations in the best interest of Canadians," Carney said Friday. He had previously said a good outcome in the talks would be to "stabilize the trading relationship with the United States" and "ready access to US markets for Canadian companies" while "not having our hands tied in terms of our dealings with the rest of the world." Carney and Trump met on the sidelines of the Group of Seven summit in Canada earlier this month. Leaders at the summit pushed Trump to back away from his punishing trade war. Dozens of countries face a July 9 deadline for steeper US duties to kick in -- rising from a current 10 percent. It remains to be seen if they will successfully reach agreements before the deadline. Bessent has said Washington could wrap up its agenda for trade deals by September, indicating more agreements could be concluded, although talks were likely to extend past July. Originally published on France24
Canada Standard
an hour ago
- Canada Standard
Canada cancels tax on US tech firms in hopes of Trump trade deal
Canada on Sunday announced that it cancelled a tax targeting US tech companies such as Amazon, ahead of resuming trade negotiations with the US. Talks between the countries stalled after Canada introduced the Digital Services Tax in response to steep tariffs set to be imposed by the US. Canadawill rescind taxes impacting US tech firms that had prompted PresidentDonald Trumpto retaliate by calling off trade talks, Ottawa said Sunday, adding that negotiations with Washington would resume. The digital services tax, enacted last year, would have seen US service providers such as Alphabet and Amazon on the hook for a multi-billion-dollar payment in Canada by Monday, analysts have said. Washington has previously requested dispute settlement talks over the tax -- but on Friday Trump, who has weaponized US financial power in the form of tariffs, said he was ending trade talks with Ottawa in retaliation for the levy. He also warned that Canada would learn its new tariff rate within the week. But on Sunday, Ottawa binned the tax, which had been forecast to bring in Can$5.9 billion (US$4.2 billion) over five years. Finance Minister Francois-Philippe Champagne "announced today that Canada would rescind the Digital Services Tax (DST) in anticipation of a mutually beneficial comprehensive trade arrangement with the United States," a government statement said. It added that Trump and Canadian Prime MinisterMark Carney"have agreed that parties will resume negotiations with a view towards agreeing on a deal by July 21, 2025." There was no immediate comment from theWhite Houseor Trump. US Treasury Secretary Scott Bessent told CNBC on Friday that Washington had hoped Carney's government would halt the tax "as a sign of goodwill." Canada has been spared some of the sweeping duties Trump has imposed on other countries, but it faces a separate tariff regime. Since returning to the White House in January, Trump has also imposed steep levies on imports of steel, aluminum and autos. Canada is the largest supplier of foreign steel and aluminum to the United States. Last week, Carney said Ottawa will adjust its 25 percent counter tariffs on US steel and aluminum -- in response to a doubling of US levies on the metals to 50 percent -- if a bilateral trade deal was not reached in 30 days. "We will continue to conduct these complex negotiations in the best interest of Canadians," Carney said Friday. He had previously said a good outcome in the talks would be to "stabilize the trading relationship with the United States" and "ready access toUS marketsfor Canadian companies" while "not having our hands tied in terms of our dealings with the rest of the world." Carney and Trump met on the sidelines of the Group of Seven summit in Canada earlier this month. Leaders at the summit pushed Trump to back away from his punishingtrade war. Dozens of countries face a July 9 deadline for steeper US duties to kick in -- rising from a current 10 percent. It remains to be seen if they will successfully reach agreements before the deadline. Bessent has said Washington could wrap up its agenda for trade deals by September, indicating more agreements could be concluded, although talks were likely to extend past July. (FRANCE 24 with AFP) Originally published on France24
Canada Standard
an hour ago
- Canada Standard
Canadian tax on US tech giants dropped after Trump fury
WASHINGTON, D.C.: On Friday, President Donald Trump announced that he was halting trade discussions with Canada due to its decision to proceed with a tax on technology companies, which he described as "a direct and blatant attack on our country." In a post on his social media platform, Trump revealed that Canada had informed the U.S. of its commitment to the digital services tax. The tax will affect both Canadian and foreign businesses that interact with online users in Canada and will take effect on Monday. "In light of this egregious tax, we are terminating ALL trade discussions with Canada, effective immediately. We will inform Canada of the tariff they will incur to do business with the United States within the next seven days," Trump stated. Canadian Prime Minister Mark Carney responded, indicating that Canada would "continue to engage in these complex negotiations in the best interests of Canadians. It's all part of the negotiation process." In fact by Sunday night, Canada had rescinded the digital tax in favor of continuing negotiations. This announcement marks the latest twist in the trade conflict that Trump has initiated since beginning his second term in January. Relations with Canada have fluctuated, especially after Trump previously hinted at the possibility of Canada becoming a U.S. state. Carney met with Trump in May at the White House, maintaining a polite yet firm stance. Last week, Trump visited Canada for the G7 summit in Alberta, where Carney mentioned that both countries agreed on a 30-day deadline for trade negotiations. The digital services tax would have imposed a three percent levy on revenue from Canadian users for companies like Amazon, Google, Meta, Uber, and Airbnb, applying retroactively and creating a potential US$2 billion liability for U.S. businesses by the end of the month. Discussions between Canada and the U.S. have also included addressing a range of steep tariffs imposed by Trump on goods from Canada. The Republican president had previously indicated that the U.S. would soon send letters to various countries regarding new tariff rates his administration plans to implement. Trump has already enacted 50 percent tariffs on steel and aluminum, 25 percent tariffs on automobiles, and a 10 percent tax on imports from most countries. He may raise these rates on July 9, following a 90-day negotiation period he initiated.
