On May 12, 2025, President Trump signed an executive order titled “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients.”  The EO notes that U.S. purchasers of pharmaceuticals often pay much higher prices than their counterparts in other rich countries, a claim that is correct. It draws a direct link between low prices abroad and higher prices in the U.S., characterizing it as drug companies fostering freeloading by foreign consumers at the expense of American consumers. In fact, the lower prices paid by foreign consumers of pharmaceutical products is driven simply by the fact that the public sector in those countries has a larger and more-robust role in administering and paying for health care. These countries use the monopsony power inherent in being the dominant payer for health care to countervail the monopoly power inherent in pharmaceutical companies selling patent-protected drugs, all to the benefit of their own citizens.  

The EO calls for drug companies to charge the same price in the U.S. as the lowest price they charge in foreign nations. If these companies do not voluntarily comply with this request, the EO calls for the Secretary of Health and Human Services to “propose a rulemaking plan to impose the most-favored-nation pricing”. It also suggests a process by which drugs could be imported from abroad to secure lower prices but offers no real details. 

Impact: Given the lack of any enforcement mechanism or policy lever to compel convergence in drug prices between countries, the short-run impact will be negligible.  

In the longer-run, it is possible that the main effect of this will simply be to help pharmaceutical companies raise prices in foreign countries rather than lower prices in the U.S. Because the order focuses only on the difference between prices in the U.S. and abroad as the objectionable feature of pharmaceutical pricing, the “most favored nation” requirement could be painlessly met by drug companies who simply raise their foreign prices.  

President Trump himself argued at the signing ceremony that the villains driving the price differential between the United States and other countries were not the drugmakers, but other countries, saying: “I’m not knocking the drug companies, I’m really more knocking the countries than the drug companies.” 

He added: “We’re going to help the drug companies with the other nations.”  

In short, while posing as a champion of U.S. drug consumers, the actual effect of the EO and the Trump administration’s main priority could well end up being boosting pharmaceutical profits at the direct expense of health care consumers in other countries.  

The lack of short-run enforcement mechanism and the long-run possibility that this could lead to higher prices paid for drugs around the world likely explain why pharmaceutical company stock prices rose following the announcement of the EO.