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UK and US Reach Tariff Agreement on Pharmaceutical Trade
The UK and US governments have finalized a trade agreement ensuring zero tariffs on British pharmaceutical exports to the US for the next three years, resolving months of uncertainty over potential 100% levies threatened by former US President Donald Trump. In exchange, the UK will increase National Health Service (NHS) spending on medicines and adjust pricing thresholds for new treatments.
Tariff Guarantee in Exchange for Higher NHS Spending
The deal, announced Monday, shields UK drugmakers-including industry giants GSK and AstraZeneca-from tariff hikes on their US-bound exports, which totaled £11.1 billion in the year ending September 2025. Under the terms, the UK will raise the price threshold for deeming new treatments "too expensive" by 25% and commit to doubling NHS pharmaceutical spending from 0.3% to 0.6% of GDP over the next decade.
Business and Trade Secretary Peter Kyle called the agreement a "win for UK innovation," noting it protects £5 billion in annual exports and "paves the way for the UK to become a global hub for life sciences." The deal also caps the rebate drugmakers must pay the NHS to prevent overspending at 15%, down from over 20% in 2024.
US Pressure Over Drug Pricing Disparities
The agreement follows sustained US criticism that American consumers effectively subsidize lower drug prices in the UK and Europe. US Health Secretary Robert Kennedy Jr. stated the deal "brings long-overdue balance" to transatlantic pharmaceutical trade, arguing Americans "should not pay the world's highest drug costs for medicines they helped fund."
Trump's June 2025 tariff threats-part of broader 10% levies on most UK imports-had left pharmaceuticals as a contentious exception. The UK's concessions aim to address US claims that NHS pricing policies suppress returns for American-developed drugs.
Industry Reactions and Investment Shifts
Tensions over drug pricing had already triggered investment shifts. In September, GSK pledged $30 billion (£22 billion) for US research and manufacturing over five years, while Merck (MSD) scrapped a £1 billion UK expansion, and AstraZeneca paused a £200 million Cambridge facility. Both firms had cited pricing disputes with the UK government.
"We're not prepared to let drug companies rip off the NHS," Health Secretary Wes Streeting said in August, though Science Minister Sir Patrick Vallance later acknowledged the need to increase medicine spending after a decade of declining budget shares.
What's Next
The three-year tariff freeze provides temporary relief, but analysts warn the UK's long-term competitiveness hinges on resolving domestic pricing disputes. The next review of NHS drug spending targets is expected in early 2026.
