Vincent So
Donald Trump has returned to the White House with a harder-edged agenda, a more ideologically disciplined inner circle, and little appetite for the old rules of global engagement.
His second presidency is more calculative, operating with strategic intent, game-theory logic, and a clear belief in zero-sum outcomes, particularly in the realms of trade, industrial policy, and the recalibration of U.S. leverage over both allies and adversaries.
Among the policies with possibility to be revived is international reference pricing for pharmaceuticals, a concept Trump attempted to introduce during his first term via a “Most Favoured Nation” pricing rule.
The policy would have benchmarked U.S. drug prices to those paid by countries like Australia, the U.K., and Canada; systems that deliver medicines at a fraction of American prices.
Though the rule was ultimately struck down on legal grounds, it remains politically popular, economically confrontational, and diplomatically explosive.
In a second Trump term, the policy may return with sharper legal scaffolding and stronger backing from trade hawks and nationalist think tanks. For Australia, the implications are serious and deeply geopolitical.
This pressure is not hypothetical. PhRMA (U.S. pharmaceutical peak lobby) has been actively lobbying against the PBS, describing it as distorting global pricing and undervaluing American innovation.
While Australian pharmaceutical affiliates and pharmaceutical peak lobby, Medicines Australia, notionally support access and equity, many of these companies are U.S.-headquartered – or the vast bulk of their income is derived from America – and their strategy is shaped offshore.
This creates a two-track message – one of affordability in Canberra, and one of commercial assertiveness in Washington.
Why the PBS exists and why it works
Australia’s Pharmaceutical Benefits Scheme (PBS) is a national monopsony: a single government buyer that negotiates directly with pharmaceutical companies to determine which medicines are subsidised, at what price, and at what volume.
This gives the Commonwealth substantial purchasing power – ensuring that essential medicines remain accessible and affordable for all Australians.
Think of the PBS like Coles negotiating with milk suppliers (contentious as that relationship can sometimes be). Because Coles buys such a large volume of milk, and there are limited number of competing supermarket chains, it can demand lower prices.
Similarly, the PBS negotiates on behalf of the entire Australian population, giving it scale and bargaining strength that would be impossible in a fragmented market.
The outcome: Australians can access life-saving medicines for as little as $7.70 per script which, on the open market, could range from a few hundred to hundreds of thousands of dollars.
To pharmaceutical companies, this may seem restrictive at first glance. But in practice, the PBS offers what many other markets do not: predictability, clinical legitimacy, and high-volume stability.
It removes marketing risk, provides transparent rules, and often delivers faster population level reimbursement than the fragmented insurer-led, litigious U.S. system.
It delivers value through certainty, not margin alone.
If the industry breaks the rules, the game becomes much harsher – for all of us
The temptation for some multinational firms will be to ride the momentum of U.S. pressure and push for higher PBS pricing – either directly or through U.S.-based lobbying channels. But if the PBS is forced to increase prices substantially, the result will not be a rising tide that lifts all boats.
Instead, it will trigger what Australia has so far avoided: a hard fiscal ceiling, where rising unit costs force the Government to triage medicines more aggressively.
That means:
- Hard choices will need to be made to categorise medicines into core and non-core therapies.
- Rare diseases with high-cost and low-volume, or marginal-benefit medicines may be delayed, rejected, or delisted.
- Companies will no longer negotiate access – they will compete for survival.
The PBS would become a brutal jungle, where the fittest survive and the rest are locked out – not due to scientific failure, but fiscal discipline. If Medicines Australia is not careful, internal fractures may emerge.
Some pharmaceutical members of Medicines Australia may gain from higher prices; others may find their franchises written out of the Australian system entirely.
And yet, some of the same companies that benefit most from the current PBS structure are aligned, whether actively or passively, with international lobbying efforts that threaten to dismantle the PBS. Industry cannot have it both ways.
The geopolitics of pricing and sovereignty
To prevent this, Australia must update its strategy. The PBS can no longer be defended solely as a health policy tool. It must be reframed – domestically and diplomatically – as strategic infrastructure.
In a world where economic sovereignty is reasserting itself, medicines access is as much about national stability as it is about health outcomes.
If Australia’s role in the Indo-Pacific is to remain stable, loyal, and strategically useful to Washington, then preserving its internal resilience matters. Afterall, Australia is an unsinkable aircraft carrier in the Indo-Pacific.
Here, Ambassador Dr Kevin Rudd – well regarded as a China hawk – has a unique opportunity.
As Australia’s envoy to Washington, he can make the case that destabilising the PBS over pricing ideology would be a short-sighted move by the U.S., undermining the credibility of an ally it needs more than ever.
The role of industry: back the system that backs you
Pharmaceutical firms should resist the instinct to capitalise on geopolitical noise.
Australia may not be a high-price market, but it is a high-integrity one. Firms that align with the PBS and support its long-term integrity will preserve their market access, their reputations, and their partnerships.
Those that seek short-term gains risk collateral damage if the system hardens. Worse still, they risk feeding a backlash that will leave no space for nuance – only a cold fiscal pie to be divided by political utility.
Power, if used wisely
Trump’s presidency will bring new pressures, including on pricing. But Australia has leverage – if it is used wisely. Canberra remains one of Washington’s most trusted strategic allies in the Indo-Pacific. That relationship can be used not to confront, but to protect.
Protect the PBS. Protect access. And protect the principle that sovereignty, stability and fairness are not up for negotiation – even in a more transactional world.
This article was originally published in the Australian Financial Review.
Vincent So is a PHAA Board member and Vice-President (Finance), CEO of the Thoracic Society of Australia and New Zealand, a former pharmaceutical executive, and a former Federal and NSW Coalition adviser to national security and Treasury ministers.
Image: RawPixel
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