If every country invested in pharmaceutical R&D the way Germany does, the pipeline of new medicines that European patients rely on would not exist.
When the EU-US Forum wrote in July that Europe’s free ride on pharmaceutical innovation had to end, Germany’s response was to double down. The Bundestag passed new legislation slashing drug prices further, and Berlin has spent the months since insisting, publicly, that there is nothing to discuss. But that posture collides with reality.
Recently, U.S. trade officials convened a public hearing into whether Germany’s system for setting prices on new medicines constitutes an unfair trade practice under Section 301 of the Trade Act of 1974. It is the next formal step in an investigation the Trump administration launched in June, and it carries consequences that reach well beyond the pharmaceutical sector.
The case against Germany is straightforward. Americans account for nearly 80% of the innovative revenue for drugs launched between 2020 and 2025, according to research by the Office of Health Policy. That disparity is not a coincidence. It is the product of deliberate foreign government policy.
Germany’s pricing system strips billions of dollars annually from American pharmaceutical companies by refusing to pay market rates for the medicines those companies discovered, developed, and brought to patients. The German government calls this system “established and balanced.” Washington disagrees. To them, it’s freeloading.
Germany isn’t the only case of freeloading. Switzerland has also chosen to move forward with a restrictive drug pricing and coverage regime. This plan would further penalize U.S. innovation.
Republican Congressman Vern Buchanan, vice chair of the House Ways and Means Committee, put it plainly: “For too long, European countries have been freeloading off American innovation while our own patients and companies foot the bill.”
Here is what makes the recent hearing significant: the leverage Washington holds is not limited to pharmaceuticals. Former Assistant USTR Dan Mullaney, now at the Atlantic Council, has noted that a Section 301 finding does not restrict retaliatory tariffs to the sector under investigation. Germany’s top export to the United States in 2025 was motor vehicles, totaling roughly 28.5 billion euros. Pharmaceuticals came in at 28 billion euros. Both are squarely within reach. The threat does not require any creative legal interpretation. It is built into the statute.
Washington has been explicit about what it wants. The demands include increasing Germany’s GDP share of spending on innovative medicines, rolling back recent legislation that deepened price discounts on new drugs, and establishing a compliance mechanism to ensure any commitments are honored. Germany currently spends less than half what the United States spends on new medicines as a share of GDP. The new health reform law Berlin passed in July, designed to close an 18 billion euro deficit in the statutory health insurance system, made that gap wider, not smaller. Companies including Eli Lilly and Boehringer Ingelheim responded by announcing investment cuts or market withdrawals.
The administration’s position is consistent with the broader accountability framework it has applied across the transatlantic relationship. As we noted in July, NATO allies ultimately committed to spending 5% of GDP on defense by 2035 after years of American pressure produced a landmark summit outcome. The mechanism that worked in Brussels can work in Berlin. The question is whether Germany’s government is willing to act before the finding forces its hand.
German politicians have argued that the problem is not German prices but American ones. Matthias Mieves of the governing German Social Democrats said that “the reality is that drug prices in the United States are far too high.” That framing misunderstands the economics of the issue entirely. The United States bears the cost of pharmaceutical R&D because other governments refuse to contribute their share. If every country invested in pharmaceutical R&D the way Germany does, the pipeline of new medicines that European patients rely on would not exist. Innovation does not happen in a vacuum.
What happens after this recent hearing is not predetermined. The USTR is still building its record. But anyone watching this process should understand that the administration launched this investigation with the intent to use it. The hearing is not a pressure release valve. It is a step in a process with a destination.
Europe has watched this dynamic play out on defense, on trade deficits, and now on pharmaceuticals. The pattern is consistent. The administration identifies a structural imbalance, applies formal and informal pressure, and holds firm until the other side moves. Berlin would be wise to treat this week’s hearing not as a procedural formality but as the signal it is.