Donald Trump has declared 2 April “a Liberation Day” for the United States because “we’re going to be getting back a lot of the wealth that we so foolishly gave up to other countries.” It’s the day when he will unveil his administration’s reciprocal tariffs regime, which will almost certainly affect a range of Australian products and quite possibly punish Australia for its Pharmaceutical Benefits Scheme.
In one sense this is not new: the big American pharmaceutical companies, mostly represented by industry group Pharmaceutical Research and Manufacturers of America, or PhRMA, have long had the PBS in its sights. It was certainly a sticking point when the Australian–US Free Trade Agreement was negotiated in 2003–04, though Australia’s negotiators managed to avoid concessions that would have raises the price of medicines. (They did, however, concede to pharmaceutical companies the right to demand a review of certain PBS decisions.)
But this time things will be very different: there will be no courteous, extended negotiations between parties. Trump will simply impose his will. And he seems unlikely to face any resistance from the two men working most closely with him on tariffs. Commerce secretary Howard Lutnick (though reportedly not thrilled with Trump’s erratic approach) has singled out Australia for dumping products on the US market; Peter Navarro, the senior White House trade and manufacturing counsellor, has made a targeted critique of Australia’s manufacturing industry.
How did we get to this seeming impasse? Trump’s tariff plan is designed to so more than simply respond to his own grievances about international trade rules. He also believes the tariffs will bring manufacturing back to the United States and make the nation “rich again.” He has even made the mathematically outlandish suggestion that tariffs could be used to replace federal income tax.
One of his first actions in January was to order the Treasury to establish an “External Revenue Service” to collect the tariff revenue he wants to use to pay down US debt and reduce taxes. Tax cuts are surely a further major driving force: the bipartisan Committee for a Responsible Federal Budget estimates that if Trump’s already-announced tariffs on China, Mexico and Canada come into effect, they’ll bring about US$120 billion a year into the US Treasury, and about US$1.3 trillion over ten years. Adding in some surprise taxes on imports from the European Union, Japan and Australia could bring the total to between US$200 billion and US$400 billion a year. Trump will need all of this and more for his tax cuts, which the committee estimates will cost somewhere between US$5 trillion and US$11.2 trillion over the decade 2026–35.
Treasury secretary Scott Bessent has laid out the key criteria the administration will use in setting its tariffs, which include what it sees as a country’s nontariff barriers, currency manipulation practices, industrial subsidies, labour conditions, and value-added taxes (like Australia’s GST). But the definitions are loose and Trump has ample room to define reciprocity in as self-interested a manner as he desires.
How is the PBS caught up in this? It’s hard to argue that Australia is “dumping” pharmaceutical products on Americans. Figures released by health minister Mark Butler show that Australia exported $2.1 billion worth of pharmaceutical products (mostly blood products and vaccines) to the United States last year against the $3.5 billion in American pharmaceuticals it imported. (The minister doesn’t say so, but presumably these figures are in Australian dollars.) Around 21 per cent of Australia’s imported pharmaceuticals come from the United States.
Some of the criteria used by the Pharmaceutical Benefits Advisory Committee for listing a subsidised medicine on the PBS — cost–benefit analyses, for example, and comparisons of new medicines with other similar products already on the PBS — could be described as non-tariff trade barriers.
But the most likely explanation is sheer opportunism on the part of PhRMA lobbyists, who see a chance to advance longstanding grievances about the tough conditions and price negotiations the US manufacturers face in getting their products — brand-name medicines, generics, biologics and biosimilars — listed on the PBS, which covers about 80 per cent of all prescription medicines for Australians. Labor’s efforts — at both the 2022 election and this year — to reduce PBS co-payments serve to make Australia a market where almost everyone with a prescription can afford to get it filled.
In an 11 March letter sent to the office of the US Trade Representative, PhRMA claimed that Australia’s “egregious and discriminatory” pricing policies undervalued American innovation. It outlined “significant unfair and non-reciprocal trade practices” encountered by PhRMA members here and in ten other major markets. It made particular criticism of the PBS process for requiring what it called “unnecessary” extra data from pharmaceutical companies, for administrative delays in listing new medicines, and for the “chilling effect” of its pricing policy.
This stands in contrast to the PhMRA submission, made in 2024, to the most recent annual review of the global state of intellectual property rights protection and enforcement. Although Australia is cited (along with Britain and countries in the European Union) as a developed market that allegedly undervalues innovative medicines, and although the submission refers to the fact that the PBS imposes automatic price cuts on medicines as soon as competing versions enter the market, Australia is barely mentioned. It doesn’t make the Priority Watch List PhRMA has drawn up for the US Trade Representative (which includes Russia, Japan, Canada and India) although it is on the Watch List (along with the European Union, Saudi Arabia, Egypt and Taiwan).
It’s hard to predict what will happen next. Trump, who is yet to speak out about this issue, hasn’t always been well-disposed towards the American pharmaceutical industry. In his first term he proposed tying the prices Medicare pays for prescription medicines to what other countries pay, but this (now somewhat ironic) proposal was never implemented. Then, having claimed credit for the Biden policy that lowered insulin prices, he couldn’t wait to undo Biden initiatives aimed at reducing prescription drug costs for Medicare and Medicaid recipients. An executive order to this effect was signed on the day of his inauguration.
Big Pharma hated Biden’s initiatives (PhRMA lost a lawsuit challenging the law that gave Medicare new powers to negotiate prescription drug prices) and so it is little wonder pharmaceutical executives now think they can work with Trump. But they may not find health secretary Robert Kennedy Jr., quite so malleable. Industry lobbyists have expressed concerns that Kennedy is bringing to the Trump administration an outright hostility towards innovative drugs, and especially vaccines.
There are a lot of contradictory positions in play, with most of the major players seemingly unaware of where their ideological stances are leading and oblivious to the fact that patients will bear the brunt of these trade wars. As health economist Luke Slawomirski pointed out recently in Crikey, if PhRMA gets its way then the proposed tariffs will make medicines even more expensive for American patients as well.
PhRMA is simultaneously lobbying the Trump administration to exempt pharmaceuticals from tariffs on the European Union, arguing that these would increase drug costs and create access barriers for patients. (The formularies American private health insurers use to restrict patient access to expensive medicines are already far more restrictive — and informed much more by cost — than the criteria used for listing these same medicines on the PBS.)
With both the Labor and the Coalition having vowed to protect Australia’s PBS, some obvious steps can be taken to protect the scheme from the accusation that it amounts to a trade barrier — and to improve Australians’ access to new medicines at the same time. After all, a central goal of the National Medicines Policy is the fostering of a “collaborative, innovative and sustainable medicines industry and research sectors with the capability, capacity and expertise to respond to current and future health needs.”
A Health Technology Assessment Review, agreed to by the Morrison government but implemented under Labor and delivered in May 2024, examined how the Pharmaceutical Benefits Advisory Committee assesses new medicines for listing on the PBS. As I discussed in Croakey Health Media last year, this was the subject of concerted lobbying by Medicines Australia, the Australian equivalent of PhRMA, among whose members are many of the American drug companies. The chief executive of Medicines Australia was a member of the review panel.
Many of the report’s recommendations have yet to be implemented. These include reducing the time taken to approve and list medicines on the PBS, greater transparency and engagement with stakeholders, and measures to tackle inequities in access to affordable medicines. Health Minister Butler has seemingly endorsed these proposals, at least in the broad sense. “The goal is faster access to the best therapies, at a cost that patients and the community can afford,” he said when the review was released. “Value for money remains paramount, because value is at the heart of patient benefit.”
An implementation group has been established but didn’t meet until 3 February. It’s time for some concerted action, sufficient (we might hope) to satisfy the more level-headed members of the Trump administration who might otherwise support punitive actions, but at the very least strengthening the PBS and making the case for its retention even stronger. •
