Even a broken clock is right twice a day.

Donald Trump’s tariff policies have been a hot mess since the day he decided to levy 25% tariffs on imports from Canada and Mexico. Things went from bad to worse on “Liberation Day” with his so-called “reciprocal tariffs” levied on the entire world. Then came the tit-for-tat ratcheting up of tariffs and retaliatory tariffs vis-à-vis China.

Now we are supposed to be happy because Trump reached a nothing-burger “we agree to agree” understanding with Great Britain. This understanding will leave a baseline tariff of 10% in place even though the U.S. runs a trade surplus with Britain.

In regard to China, a temporary tariff reduction from 145% to a mere 30% is now in place. Presumably, this will give the administration time to negotiate a deal bringing good-paying jobs manufacturing pencils and dolls back to the States.

In contrast to tariffs that make Americans pay more when they could be paying less, Trump finally hit on the area where Americans pay more so foreigners can pay less. Americans pay far more for prescription drugs — sometimes 10 times as much — as foreigners.

Most foreign governments regulate the price of drugs. They do not pay based on all the costs of producing a drug. Direct costs include research and development, regulatory compliance, marketing and manufacturing. Indirect costs include the costs of the many drugs that fail.

Instead, governments negotiate based on marginal costs. Suppose the all-in cost of a pill is $25 while the marginal cost of making another pill is $2.50. Once the pill is on the market, selling it for anything above marginal cost is additive to company profits.

This dynamic gives governments the leverage to negotiate low prices. The company can sell to Government A profitably at $3 as long as there is a Health System B paying, say, $30.

For far too long, Health System B has been the USA. Our money pays for research and development while foreigners free-ride.

Trump’s plan is that buyers in the U.S. — unclear whether this is government-run providers or all providers — receive most favored nation status. In other words, companies must offer the U.S. the lowest price charged anywhere in the developed world.

How this will be accomplished is an open question. Government by executive order is Trump’s go-to. But where does a president get the right to dictate the price of drugs?

If Trump succeeds in gaining most favored nation status, the best outcome would be higher prices abroad and lower prices at home with research and development unaffected. A worse outcome would be a drastic cutback in R&D with fewer new drugs and vaccines being developed.

In any case, the culprit is not really the pharma companies or their lobbyists. The companies need to make money where they can in order to stay in business. The problem is the foreign governments who have been exploiting us for years. Just as our allies need to pull their weight on defense spending, they need to pull their weight on pharma.

Jeffrey Scharf welcomes your comments. Contact him at jeffreyrscharf@gmail.com.