What foreign-made steel, NATO and prescription drugs have in common is that President Donald Trump thinks U.S. consumers and taxpayers are being ripped off in all three areas.
And he has a point.
With respect to foreign-made steel, Trump has accused other countries, and especially China, of dumping cheap—i.e., government subsidized—steel in U.S. markets.
He argues that U.S. steel manufacturers aren’t able to compete against the government-subsidized, foreign-made steel, devastating the U.S. steel industry, costing jobs and creating a national security threat.
As for NATO, Trump has accused our NATO allies of not spending enough on their own defense. And the president is correct. The NATO countries have agreed in principle to spend about 2 percent of GDP on their own defense needs.
As Forbes contributor Niall McCarthy noted last December, in 2017 only five of the 20 NATO countries met that obligation. Today it’s nine countries. So a little success in forcing the countries to change their behavior.
Trump argues that most of the NATO countries are free-riding off U.S. taxpayers. That is, the U.S. must spend more on defense—3.42 percent of GDP—to ensure the free world remains free, in part because the NATO countries spend less.
Now the White House Council of Economic Advisors has released a paper asserting that foreign countries are not paying enough for brand name prescription drugs. “Stringent government underpricing in foreign countries has substantially increased foreign free-riding on the United States. The result is a slower pace of overall innovation, less competition from new entrants, and thus higher prices paid for patented drugs that lack therapeutic competition.”
In other words, U.S. consumers are bearing a disproportionately larger share of the cost to identify innovative new drugs, develop and move them through the FDA approval, while the governments in most other countries impose price controls so that they pay a disproportionately smaller share.
Again, the president’s Council is almost certainly correct.
But here’s where the irony comes in. With respect to steel, Trump wants other countries to stop subsidizing steel production, which means those prices would rise. He is not demanding we import their lower steel prices.
With NATO, the president wants our allies to spend more on their own defense. He does not demand that we cut defense spending to match the other countries.
But when it comes to prescription drugs, Trump has proposed creating an international pricing index that would reflect the prices of those countries the Council says are free-riding. In addition, he is actively pushing to allow individuals living in the U.S. to import drugs from other countries, which is currently illegal.
So why is price-controlled foreign-made steel bad, and low NATO defense spending bad, and even price-controlled prescription drugs bad, but importing foreign drug prices or the drugs themselves good?
February 18, 2020