The news: The UK will increase the price it pays for new medicines in exchange for evading tariffs on pharmaceutical exports to the US, under a trade agreement reached between the two governments on Monday.

• Per the terms, the UK government will raise the net price it pays for new patented drugs by 25%.
• The UK also agreed to lower the rebate rate it receives from drugmakers to cover branded medications from approximately 23% to 15%.
• In return, UK-made medications and their ingredients, as well as medical technology, will be exempt from pharma sector tariffs and country-specific tariffs for at least three years.

Catch up quick: Britain’s publicly funded healthcare system, the National Health Service (NHS), pays for drugs in the UK after negotiating prices with pharma manufacturers. And the NHS will walk away from deals with drug companies if it determines their prices are too high relative to the clinical benefit provided. As a result, the Trump administration has argued that the UK and other wealthy countries don’t pay their fair share for medicines relative to the US.

Why it matters: A less favorable business environment—driven by reduced drug spending by the NHS—has led some pharma manufacturers to scale back UK investments, potentially resulting in fewer new medicines launching there.

• The UK invests around 9% of its healthcare spend in medicines, which is lower than comparable countries such as Japan (20%), Spain (17%) and Germany (14%), per a September 2025 report from the Association of the British Pharmaceutical Industry.
• Pharma companies such as AstraZeneca (headquartered in the UK), Eli Lilly, Merck, and Sanofi have recently paused or halted UK manufacturing projects.

However, rising NHS drug spending and tariff protection will drive some Big Pharmas to re-invest in UK operations. Bristol Myers Squibb plans to spend more than $500 million in UK manufacturing and R&D over the next five years, with its CEO crediting the new deal for creating a more supportive business climate, per a government press release. For context, pharmaceuticals make up about one-fifth of all UK exports to the US by value.

Implications for pharma companies: The deal is further affirmation that Trump will use tariff threats as a bargaining tool to advance what he views as larger measures against the pharma industry: increasing domestic drug production, reducing the cash-pay prices of some expensive medicines, and bringing US drug costs closer in line with those in other affluent countries.

The strategy appears to be paying off since Trump hasn’t actually imposed any of the exorbitant tariff threats he has warned. But the threat alone is enough to get deal partners (e.g., drugmakers and foreign governments) to meet him at the negotiating table. Trump will likely pursue similar drug-pricing/tariff-relief deals with other wealthy nations, especially those that are heavy pharmaceutical exporters or countries he believes get too good a deal on drug prices.

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