President Donald Trump will soon host Japanese Prime Minister Sanae Takaichi at the White House, where the two leaders will seek to strengthen the United States-Japan alliance and boost both countries’ economies.
The president can advance these goals simultaneously in healthcare by urging Takaichi to reform how her aging nation’s healthcare system pays for prescription drugs.
For decades, Japan, the world’s fifth-largest economy, has artificially suppressed its spending on innovative medicines, effectively freeriding on U.S. rewards for innovation. The country’s government-run health system conducts annual pricing reviews and frequently slashes prices on patented drugs. It also relies on outdated “cost-effectiveness” metrics to justify setting drug reimbursement rates for new drugs much lower than those in other developed countries. In late 2025, the Japanese government doubled down on these tactics, despite nominal promises of reforms.
CHINA PANICS AFTER TAKAICHI DECLARES INTENTION TO REMILITARIZE JAPAN
These price controls undermine Japan’s own domestic drug sector, which is dominated by biotech giants like Takeda, Daiichi Sankyo, and Astellas.
More importantly for the Trump administration, the price controls shortchange the U.S. biotech companies that develop a plurality of the world’s new medicines. Japan’s pricing tactics reduce drug companies’ global annual revenues by over $36 billion, thus disproportionately shifting the rewards of global research and development onto Americans.
That free-riding is unfair. But it’s also a very tangible threat to our economy and our health. If American companies are losing tens of billions in revenue, they cannot hire as many workers or develop as many life-saving treatments.
Trump has already made it a top priority to combat foreign free-riding. His recent trade deal with the United Kingdom, for example, will require the U.K. to ultimately double its spending on medicines, as a share of GDP, by 2035. This is a more productive way to reduce foreign free-riding than tying countries’ prices together through most-favored-nation policies.
If Trump pushes Takaichi for a similar deal at their upcoming meeting, he would be advancing both countries’ interests. Such an agreement would obviously benefit the U.S. by enabling American biotech companies to expand research efforts, build more facilities, hire more workers, and thereby promote greater patient health across the globe.
But Japan would benefit as well. It has the world’s oldest population; almost a third of its citizens are over 65. That demographic reality, and the chronic conditions that accompany it, already weigh heavily on Japan’s economy. Fewer healthy workers means lower productivity and tax revenue. Former Prime Minister Fumio Kishida has even questioned whether Japan “can continue to function as a society,” given its demographic headwinds.
Rolling back price controls and expanding access to new medicines would help keep Japan’s aging population healthy and productive for longer, thus strengthening Japan’s economy. One analysis found that, due to rigid price controls, Japanese patients can access only 43% of the new drugs launched worldwide. Americans can access 85%, thanks to our comparatively market-based system and more limited rationing.
By increasing spending on innovative medicines, and thus expanding Japanese workers’ access to those drugs, Takaichi could simultaneously boost American industrial capacity and improve her citizens’ health and tax base.
Such reforms wouldn’t even require Japan to increase total drug spending. It merely requires Japanese officials to make wiser decisions about how to allocate that spending.
Right now, Japan only fills about 71% of prescriptions with generic drugs, one of the lowest rates of any developed country. In the U.S., by contrast, generics account for about 93% of all prescriptions, the highest rate in the developed world. And our generics cost, on average, about half as much as the same generics in Japan.
Because of our vastly higher generic utilization rate, it actually costs 35% less to fill the average prescription in the U.S. than in Japan, even though our brand-name drugs tend to cost more.
In other words, if Japan simply adopted U.S. policies that promote generic utilization, it could afford to pay more for new, innovative drugs without increasing overall drug spending.
JAPAN’S TAKAICHI WINS BIG IN SNAP ELECTION AFTER TRUMP ENDORSEMENT
Takaichi will arrive in Washington following a decisive victory in a recent snap election. With a supermajority in parliament and broad public support, she has significant political capital to pursue Japan’s interests.
She can do so by working with Trump to directly address the drug-pricing imbalance that reduces the health and tax base of her aging country. An agreement would give our president another big win in his campaign to combat global free-riding. But more importantly, it’d reinforce an eight-decade-old alliance and promote health and long-term economic growth in both countries.
Tomas J. Philipson is an economist at the University of Chicago and served as a member and acting chairman of the White House’s Council of Economic Advisers from 2017 to 2020.