Berlin calls drug pricing “a purely domestic matter.” The patients waiting on the next generation of medicines would disagree.

The EU-US Forum has been consistent on this. In July we wrote that Europe’s free ride on pharmaceutical innovation had to end. In September we explained why the Section 301 investigation into Germany’s drug pricing deserves to be taken seriously. Since then, the hearing has come and gone. Berlin’s position has not moved.

The numbers have not moved either. The United States spends almost four times as much on innovative medicines as Germany does. Germany spends less than half what the U.S. spends on new drugs as a share of GDP. Germany is the largest economy in Europe and home to some of the world’s most sophisticated pharmaceutical companies. It can afford to pay. It chooses not to.

In July, Berlin passed a health insurance overhaul that deepened mandatory discounts on branded medicines. The steepest cuts land on drugs with annual sales above €100 million, which in practice means the most successful innovative therapies. The law was written to close a projected €18 billion hole in the statutory health system. In effect, Germany filled its budget gap by charging less for the products of American research.

The industry’s reaction was predictable. Eli Lilly and Boehringer Ingelheim announced investment cuts or withdrawals. Other companies warned they may stop launching new drugs in Germany at all.

This is where the Trump administration’s work to rebalance prescription drug costs has an effect. Under current posture, drugmakers commit to aligning American prices for new medicines with what other wealthy nations pay. Germany is one of the high-income countries those prices are measured against. When Berlin forces prices down at home, it is no longer just making a domestic budget decision. It is trying to export its price controls into the American market through the benchmark.

That puts Germany at the center of the debate on prescription drug prices. Its policies are a big part of why the gap between American and European prices exists. Washington has two options for closing that gap: American prices come down or German prices come up. The administration has been clear about which one it expects. Its demands for Berlin are specific. Raise the share of GDP spent on innovative medicines. Roll back July’s deeper discounts. Accept a compliance mechanism so commitments are kept.

Germany’s counteroffer has been underwhelming. Officials are developing a so-called “Germany bonus,” which would ease discounts only for companies that follow German collective bargaining agreements and carry out research, development and production in Germany. That is not a fix for underpayment. It is a local-content requirement wearing a health policy label, and it rewards companies for moving investment out of the United States.

Critics at the hearing argued that R&D costs and drug prices are not linked. If that were true, Lilly and Boehringer would not be pulling investment over German pricing. Capital follows returns. When a wealthy market refuses to pay for innovation, less innovation gets funded. The burden of paying for what does get funded shifts to American patients.

There is a model on the table. The United Kingdom agreed to double its spending on new medicines over the next decade and raise its price thresholds for innovative treatments. In exchange it secured three years of duty-free pharmaceutical trade. USTR Jamieson Greer called it “a ground-breaking arrangement.” Germany could have the same deal tomorrow.

Chancellor Merz called drug pricing “a purely domestic matter” when the investigation was launched. It stopped being domestic when Germany’s prices started setting the terms for American patients. The longer Berlin waits, the fewer options it has left.