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Trump can lower U.S. drug prices by fixing NAFTA

Canada: The Enemy Next Door

By David Nelson, CFA

Twenty-three years after President Bill Clinton signed NAFTA, the United States meets once again with our closest neighbors, Canada and Mexico. The administration looks to renegotiate a treaty that many Americans feel didn’t live up to the spirt and promise of the original document. Lost jobs and a widening trade deficit have prompted President Trump to demand a “get tough” posture. Negotiations started on August 16, but to date, most of the rhetoric has focused on manufacturing and the auto sector. While these are important issues, it is imperative that the administration address a rising threat that imperils our future.

Intellectual property sits at the top of the economic pyramid. Without it, there is no innovation—and as we’re rapidly discovering, no customers. Increasingly, world players seem to believe the sweat and hard work of American scientists and entrepreneurs are theirs for the taking. China has long been a challenge for US corporations, with both the previous and current administrations expressing their concern to the Chinese government.

What’s surprising and often overlooked is the blatant disregard for our intellectual property rights by our friend and closest trading partner, Canada.

Canadian flag. Photo from CP Images

The only thing standing between society and anarchy is the rule of law. It extends beyond what’s necessary to protect citizens, but it also provides the foundation of our economic principles. Without it, capitalism—as well as the innovation and prosperity it’s created—would never have survived.

Intellectual property is the backbone of capital markets

U.S. markets and industry have long been a magnet for capital, as entrepreneurs and investors have been confident their intellectual property was protected—making the human and financial risks worth taking. When that rule of law is compromised, capital flows slow, and eventually, that starves the very innovation and discovery that made the United States the most powerful economic machine the world has ever known.

NAFTA renegotiations are underway, and for the U.S., it’s an opportunity to establish protocol and an enforceable trade document that doesn’t let our partners to the north continue the theft of our intellectual property. U.S. drug companies have been on the losing end of this battle for years, as the Canadian judiciary invalidated US patents using their so-called “Promise Doctrine,” while most other countries upheld those very same patents.

It’s no wonder the Canadian health care system is held up by the liberal media as a shining example of how to keep drug costs lower. Of course it is. What could be more efficient than stealing the drugs —or in this case, letting local generics get away with reproducing brand new (often lifesaving) drugs, paying little or nothing for the discovery?


American drug innovation is subsidizing the rest of the world

American’s are subsidizing the drug costs of much of the developed world. Are we really that benevolent, or are we just blind to the fact that our trading partners are extending their hand in friendship while picking our pocket with the other.

The U.S. is the world leader in medical research. Over the last decade and a half, the bulk of the world’s molecules have been discovered right here in the United States. It’s safe to say the industry is a gateway for higher paying jobs, increasingly tough to come by in a world forever changed by global competition.

NAFTA was billed as the first treaty to focus on intellectual property rights. Since that time, the United States, a leader in drug discovery, has built a $1.2 billion trade surplus with Mexico in biopharmaceutical products, yet a $717 million trade deficit with Canada. Perhaps our friends to the south respect the rule of law just a bit more than our northern neighbors.

Americans have good reason to be outraged that they are paying more for drugs here in the United States than our counterparts in most of the free world. Trump has promised to get tough on trade negotiations. Well, the renegotiation of NAFTA is a great place to start.

The Promise Doctrine, which the Canadian government and its generic industry have hidden behind for more than a decade, has been shown to be little more than a legal charade to steal what they couldn’t create internally. It’s not surprising that Canada’s Supreme Court finally struck down the legislation, saying it isn’t good law.

This is the first trade deal for the administration. It’s very important to ink the highest possible standard, as it will set the tone for future IP negotiations with China, South Korea and other trade partners that have a history of undermining our IP.

Hopefully, when NAFTA negotiations are completed, the U.S. and Canada can move forward in the spirit of true friendship—a friendship that respects each other’s rights and provides a working framework for cross-border trade that benefits all. America looks forward to embracing our friends to the north, but will be very tough if they remain the enemy next door.


Please contact your Belpointe investment advisor representative if there are any changes in your financial situation or investment objectives.

Investment advice is offered through Belpointe Asset Management, LLC. Past performance is no guarantee of future returns. Insurance products are offered through Belpointe Insurance, LLC and Belpointe Specialty Insurance, LLC. It is important to read our email disclosures available at this link: http://belpointe.com/disclosures.