Donald Trump’s newest political maneuvering to approve the importation of Canadian drugs may yield only shortages for his northern neighbours and shrink much needed research and development into new pharmaceuticals.

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US President Donald Trump with Health and Human Secretary Alex Azar.

Late last December, the Trump administration unveiled the details of its long-anticipated plan to legalize drug importation to the United States from Canada. As per his often repeated declaration that drug prices were one of his “greatest priorities”, and that it was “unfair these drugs cost far less than what we pay in the United States”, the Donald has created two avenues for importation, one allowing drug makers to import their own products from other countries and the other enabling them to apply to import drugs from Canada. Opposition is understandably fierce, both from American pharmaceutical companies and the Canadian government. However, the President is adamant about moving forward with this particular political stratagem, which will undoubtedly earn him much support from his constituents, who are rightfully disgruntled about the comparatively exorbitant prices they pay for their prescriptions.

Importation of cheaper Canadian drugs would theoretically not just provide a cheaper alternative for Americans, but also force competitors not importing drugs to reduce their prices to stay competitive in the market. Dropping prices would substantially reduce the revenue collected by big pharma, which has understandably made these corporations irate and desperate to reverse the new measures. Of course, it would be a PR disaster for any pharmaceutical company to beg the public to pity the shrinking margins of a multi-billion-dollar corporation. Instead, they are pushing for the safety issue, that the drugs approved by Health Canada fail to meet the standards set by the supposedly more stringent FDA. However, Canada is evidently not some third world country with an impotent bureaucracy, and so these particular concerns are likely exaggerated. Indeed, in recent years the FDA and Health Canada have been working to harmonize their appropriate drug approval processes.  Health Canada drugs actually tend to take longer to approve than their American counterparts, which might be expected to be the reverse if the process was laxer. On the other hand, a decent proportion of drugs claiming to be imported into the United States from Canada may actually originate from third parties. Investigations conducted by the FDA have suggested that as many as 85% of purportedly imported Canadian drugs may in fact be produced in other nations. However, states like Florida have been endeavouring to formalize the process of drug importation through a mechanism that avoids the introduction of counterfeit, and so it is possible this effect could be mitigated.

Of course, Canadians have much to lose from the new American plan. Dramatic shortages would almost certainly cripple the Canadian drug market, considering Canada with its paltry 36 million people is little more then a tenth the size of her massive neighbour, and estimates suggest the entire supply would be exhausted in only 8 months if Canadian drugs filled out even only 10% of American prescriptions. Health Canada has been stalwart in denying that the Canadian government has a responsibility to American consumers who fill prescriptions via Canadian mail order pharmacies, stating it “does not assure that products being sold to U.S. citizens are safe, effective, and of high quality, and does not intend to do so in the future”. Canadians will suffer from significant drug shortages if the Americans go ahead with these new schemes of importation and patient advocacy groups and the government agencies our side of the border have been endeavouring to convince the Americans of the unfeasibility of this policy. Of course, Canadians do not provide any votes for Donald Trump, and he has been famous for feuding with our prime minister. The matters of his northern neighbour are of little concern to him.

However, there is still one very major concern that Donald Trump should be wary of, that could easily be a major detriment in the long run for not just Americans but for much of the Western world.  Although it might seem the main losers in this policy are us Canadians who could experience drug shortages, and big pharma (both of whom do not provide many votes for the populist President Trump), the biggest brunt will actually be dealt to American consumers. Understanding why requires knowing why drugs are cheaper in Canada in the first place.  In Canada, federal and provincial agencies are responsible for purchasing many pharmaceuticals wholesale.  These agencies thus carry considerably more power than the companies, who have already invested copious amounts into the sunken costs of research and development. While they offer purchases that cover the costs of physically manufacturing the drugs, which generally ranges in the millions, they do not reimburse the billions spent in research. However, pharma companies have few alternatives other then to accept the deal, as one of their competitors would be more then happy to oblige the Canadian government upon witnessing their opponents falter, and making any deal helps alleviate the sunken costs of R&D. Where then, are most of the costs recuperated? In America, where consumers must essentially subsidize the rest of the westernized world and their nationalized health-care systems with outrageously high prices.

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Even if it was possible for sufficient amounts of Canadian drugs to be imported across the border and drive down prices, this would just destroy the incentive for pharmaceutical companies to even invest in research and development, when their last hold out is finally eliminated. If there is no reward for spending billions in investment, why bother? Big pharma would incur far fewer losses through simply maintaining existing species. Hence, although reducing government involvement in matters of international trade is generally a good idea, the artificial price controls inflicted upon the market by governments that whole-sale purchase their drugs skewers the market and pushes the fixed costs of research and development from one nation to the next, until companies wise up and recognize its just a waste of time anyways.

However, we need new drugs. Superbugs for instance, demand ever evolving sources of antibiotics. Unless we plan on relying mostly on governmental research for R&D of new pharmaceuticals, which would inevitably be extremely expensive even if it does not lead to disaster, the issue of wholesaling pharmaceuticals must be addressed. Obviously, such a scenario is very extreme. However, if the Americans were so adamant about making other nations pay their fair share, then this ought to be their issue of choice, not renegotiating free trade agreements because they do not understand a trade deficit is really a neutral issue.  Eliminating some of the artificial price controls imposed by nationalized systems on drug deals would substantially lower the prices in both America, and Canada which does not carry a fully nationalized pharma-care system. More importantly, increased revenues across the board would spur increased investment in newer drugs, that would improve the health of nations in the long run, and thus drive down the costs incurred as a whole through morbidity. If the Donald persists with this misguided crusade, he risks ostracizing his entrepreneur instincts and destroying the incentives that he so claims to protect.

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