President Trump recently issued an executive order, aiming to lower prescription costs down for Americans by aligning prices with those paid in other wealthy nations.
The policy introduces a most-favored-nation pricing model, expands Medicare’s ability to negotiate costs and pushes for more domestic drug manufacturing.
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However, while the order aims to achieve price relief, rising tariffs on pharmaceutical ingredients and equipment, particularly those sourced from China, could drive production costs higher.
Will Trump’s order on prescription drug prices be enough to offset tariffs?
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What the Executive Order Does
Since the U.S. is the largest buyer of prescription drugs in the world, the goal of the executive order is to ensure it gets the best deal.
It instructs U.S. trade officials to prevent foreign countries from maintaining low prices through practices that ultimately lead to higher American prices.
The government will also set clear price targets and inform drug companies of its expectations.
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If drug companies won’t offer those lower prices, the government is prepared to step in with new rules and strong actions to stop price-gouging and break up unfair practices.
To help lower prices, the plan also includes a new option: patients may be able to buy medication directly from manufacturers at the lowest price those companies offer in any country (known as the “most-favored-nation” price), thereby skipping the middlemen.
Unpacking the Promise of Lower Costs
Dr. Gary Mangiofico, executive professor of management and leadership at Pepperdine University’s Graziadio Business School, said that while the executive order aims to cut costs, not every American will feel the impact equally.
For example, the savings depend on whether a person takes prescription drugs and how their prices are currently negotiated.
In addition, Mangiofico said the entire pricing system is already clouded by discounts, pharmacy benefit managers and international pricing models, making comparisons and predicted savings hard to quantify.
Tariffs Could Undercut Savings
While the executive order aims to lower drug prices, tariffs may drive them back up.
That’s because many active pharmaceutical ingredients (APIs) and key raw materials used to make medications are sourced from countries like China and India. Even drugs manufactured in the United States often rely on imported components to complete their supply chain.
If tariffs are imposed on these chemicals, materials or medical equipment, the production cost can rise. This will leave manufacturers to decide whether to absorb the costs or pass them on to consumers.
“A potential 25% tariff on drugs could raise U.S. prices by as much as 12.9%, depending on how much of the cost gets passed on to consumers,” said George Carrillo, former director of social determinants of health for the state of Oregon and current CEO of the Hispanic Construction Council.
“This move could also complicate availability if companies decide to reduce exports to the U.S. in response. While the administration aims to boost domestic production of drugs, it’s a slow process that may not offset the immediate effects of a tariff-heavy strategy,” Carrillo added.
Will Tariffs Even Happen?
It’s unclear whether President Trump’s tariffs will take effect.
According to Reuters, a federal court recently blocked the administration’s tariff plan, ruling that it exceeded presidential authority under the International Emergency Economic Powers Act.
In addition, drugmakers and investors have pushed back against both the pricing reforms and the tariffs, raising concerns about market volatility and supply chain disruption.
“If the administration experiences significant blowback due to increased volatility in the stock market, then they may be slower to implement them, if at all,” Mangiofico said. “And, given enough time, pharma companies could build and ramp up their production in this country, bypassing tariff issues altogether.”
What to Expect
Experts said most consumers won’t see immediate savings from the executive order.
“Even if drug companies cut prices they charge wholesalers, it won’t reduce the co-pays and deductibles that patients pay,” said David Williams, healthcare business and policy expert. “So, consumers will have to look elsewhere to make up for rising overall costs.”
In addition, Williams said over-the-counter medications sold at retailers like Walmart could get more expensive, especially those using imported ingredients.
Finally, legal challenges could slow implementation, while pharmaceutical companies may find alternative ways to shift the costs; therefore, it’s too early to expect lower prices.
“These developments could significantly influence both the affordability and availability of treatments, making it a crucial time for anyone managing the cost of necessary medicines,” Carrillo said.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Will Trump’s Order on Prescription Drug Prices Be Enough To Offset Tariffs?
