Donald Trump has long vowed to tear up NAFTA and replace it with a deal that benefited American workers and companies. But where it concerns medicines, his new deal—dubbed the un-mellifluous US-Mexico-Canada Agreement (USMCA)—only works for US corporations, at the expense of American workers. It also will deal a big blow to Canadian healthcare consumers.
The new pact features a host of rules that will hike drug prices in Canada, according to Dean Baker, economist at the Center for Economic and Policy Research. For instance, it mandates that biologically-derived drugs receive 10 years of marketing exclusivity before similar drugs can enter the market, notes Baker. This is despite the fact that the US Federal Trade Commission says that these types of drugs don’t require such protections due to the difficulty of creating generic versions of them. Another provision forces Canada to protect exclusivity for new applications of existing drugs.
Discussions about global commerce often take for granted the sanctity of “intellectual property” rules. But it’s important to see them for what they are. Patents protect ideas or ways of doing something by granting exclusive rights to sell things that use those. Legal, government-enforced monopolies, in other words. Some degree of protection is essential to encouraging invention and innovation. However, too much protection of ideas can stifle innovation.
And monopolies, of course, let companies crank up prices to the maximum of what the market will bear. And since so many people’s wellbeing—and, indeed, their survival—depends on drugs, the market will bear extremely high prices. Think, for example, of the EpiPen emergency of a few years ago, when the patent-holder jacked up prices of the life-saving device 500% in five years.
Drug prices are much lower in Canada than they are in the US because the government, and not pharmaceutical companies, sets drug prices. (As a result, millions of Americans buy medicines from Canadian online pharmacies, which is neither legal nor all that safe, but is far, far cheaper.) Because the USMCA’s increases protections of pharmaceutical intellectual property, Big Pharma has more power to charge Canadians higher drug prices.
So far, so bad for sick Canadians. But what does this have to do with American workers?
As Baker points out, the USMCA will also very likely raise licensing payments from Canadians to US drug companies like Pfizer and Merck. The problem is, more exports alone won’t change the US trade deficit. Rather, that depends on the difference between how much America saves and invests. (We explain the accounting mechanisms of this concept in a fun hypothetical discussion of Basketania and Fruitlandia.) To offset this rising surplus in drug exports, other US exports to Canada will have to shrink—probably manufactured goods, says Baker.
Here’s a less blandly arithmetic way of thinking about this. As Canadians swap loonies for dollars needed to pay those higher prescription drug prices, they will drive up the greenback’s value, all else equal. A stronger dollar also makes US exports that much more expensive—and, therefore, less competitive against the other goods and services that Canadians buy. And of course, reduced sales of exports mean less hiring or possibly even layoffs of American workers.