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Joe Biden’s assault on the $900 child-eczema cream

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BUYING PRESCRIPTION DRUGS in America can feel a bit like being a tourist haggling at a street market. First, a ludicrous “retail price” is mentioned (for your correspondent recently, $902 for eczema cream for a child). Then, insurance is applied, followed by a layering-on of coupons (often printed by the pharmacist and then handed to themselves), discount cards and rebate claims. And yet even after all that, the amount of cash you pay out of pocket is still steep by international standards (the cream ended up costing $273).

Americans agree on few things, but lowering the price they pay for medication is the most popular policy position in American politics, tied with support for Social Security. Nine in ten say this should be an important or top priority for Congress. In his State of the Union address Joe Biden spent a full three minutes on the topic. Yet just over one in four say they are aware of President Biden’s attempts via the Inflation Reduction Act (IRA) of 2022 to reduce prices—something he is trying to rectify ahead of the presidential election in November. At least as interesting as the direct effect of Mr Biden’s landmark law is the question of what the indirect effects might be.

Americans spend twice as much on prescription medication per person as comparable countries, according to Peterson-KFF, a health-research group. This spending is heavily skewed by branded drugs with no competitors, so-called non-generic drugs. These make up 10% of prescription drugs but 80% of spending. Adjusted for inflation, spending on prescription drugs has increased from $101 per person in 1960 to $1,147 in 2021. Unsurprisingly, that scale of increase has an effect on care: nearly one in three Americans say they sometimes skip taking medication as prescribed because of the price tag.

The IRA, which was mainly a climate-change and industrial-policy law, did actually have some provisions designed to bring down inflation (although not in the short term). One politically important one relates to Medicare, the public-health insurer for the elderly which covers prescription drugs for 50m people.

The IRA empowered Medicare administrators to negotiate prices with drugmakers, which they had long been forbidden from doing. This should eventually reduce the price consumers pay, though probably not until a few years after the next presidential election. In the near term, the IRA also capped some out-of-pocket drug costs. The first to feel the effects of these measures are people with diabetes who need insulin, a drug for which Americans pay several times what Europeans pay. A national out-of-pocket cap of $35 per insulin prescription per month has meant that, since January 2023, millions enrolled in Medicare can now get insulin at a reduced price.

Another tangible result is an annual cap on out-of-pocket spending. Doug Hart, a 77-year-old from Arizona with heart disease, previously spent about $7,000 per year on prescription medication. Under the new cap, which is being phased in, he will be on the hook only for the first $3,300 this year,, before Medicare foots the rest of the bill. From next year, the cap will be lowered to $2,000. “The way I see it, Biden is saving me $5,000 in out-of-pocket drug costs [and] I can go and see my grandkids in Chicago instead,” he adds. Both measures have brought substantial relief to people on Medicare, says Juliette Cubanski, at KFF, noting that the average annual income for participants is less than $36,000.

These first measures have been relatively easy to implement because they enjoy bipartisan support and the pharmaceutical industry does not mind them—if anything, it welcomes them, because they make drugs cheaper for consumers while the government picks up the difference. The second half of Mr Biden’s law, which gives Medicare a mandate to negotiate drug prices directly with manufacturers and penalises drug companies that raise prices above inflation, has been met with more hostility from the industry. Yet it is this part that will make a difference for taxpayers (and the deficit): without it, the price caps for consumers will just push high drug bills on to the government.

Negotiations between the government and Big Pharma are under way behind closed doors. Drug companies are keen to reassure shareholders that the government’s proposals are not as outlandish as feared. Yet at the same time they have filed several lawsuits challenging the legislation. One way or another the federal agency that administers Medicare will publish a list of the “maximum fair price” for each of the first ten negotiated drugs by this September, with the intention of introducing these discounts by 2026. The list includes Eliquis, a blood-thinner used by around 3.5m Medicare patients,including Mr Hart and “half the people” he knows. Medicare spending on these ten drugs more than doubled between 2018 and 2022.

Mr Biden’s claim that he has already saved American taxpayers $160bn thanks to these negotiations is misleading, because it relies on projections of future government savings. No doubt the price negotiations, which will ramp up to cover at least 20 drugs per year by 2029, will be good for the public purse. Ozempic, a diabetes and weight-loss drug, is an obvious candidate for the next tranche. The impact could be substantial: gross Medicare spending on such weight-loss drugs for a growing number of conditions has increased from $57m in 2018 to $5.7bn in 2022. Ozempic alone was the sixth most expensive drug for Medicare in 2022.

There is also the question of what the knock-on effects of the IRA will be, both for other drugs and beyond Medicare. “Now that the government has these new tools, there are huge opportunities to go beyond it [the IRA],” says Richard Frank, at the Brookings Institution, a think-tank. Benedic Ippolito, at the AEI, another think-tank, says that the real question is how the law will evolve in the future. “If you can suddenly negotiate more drug prices, earlier in their life cycle, or these prices apply to the entire private market, then suddenly this is not an incremental change—this is a sea change.”

Mr Biden has said he will try both to increase the number of drugs subject to negotiation and expand the $2,000 out-of-pocket cap to people with private insurance. Expanding the negotiations to 500 drugs over ten years would be “transformative”, says Merith Basey, from Patients For Affordable Drugs, an advocacy organisation. And once the prices that Medicare pays for expensive drugs are published, this might increase the bargaining power of private insurers too.

Over eight in ten Americans support the idea that the federal government should be able to directly negotiate with Big Pharma on drug prices and nine in ten believe price increases should not outpace inflation. “Any elected official who aligns themselves with pharma and against the will of voters will do so at their own political risk,” warns Ms Basey. The president’s campaign team will be hoping that enough people notice the new, reduced Medicare drug prices, which will be announced in September—just in time for the election.

Another scenario is just as likely: Mr Trump wins and claims credit for Mr Biden’s achievement, because the price reductions would not actually come into force until 2026. That would be the Trumpiest move. Either way, patients should benefit.

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Trump tariffs’ effect on consumer prices debated by economists

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The U.S. government is set to increase tariff rates on several categories of imported products. Some economists tracking these trade proposals say the higher tariff rates could lead to higher consumer prices.

One model constructed by the Federal Reserve Bank of Boston suggests that in an “extreme” scenario, heightened taxes on U.S. imports could result in a 1.4 percentage point to 2.2 percentage point increase to core inflation. This scenario assumes 60% tariff rates on Chinese imports and 10% tariff rates on imports from all other countries.

The researchers note that many other tariff proposals have surfaced since they published their findings in February 2025. 

Price increases could come across many categories, including new housing and automobiles, alongside consumer services such as nursing, public transportation and finance. 

“People might think, ‘Oh, tariffs can only affect the goods that I buy. It can’t affect the services,'” said Hillary Stein, an economist at the Boston Fed. “Those hospitals are buying inputs that might be, for example, … medical equipment that comes from abroad.” 

White House economists say tariffs will not meaningfully contribute to inflation. In a statement to CNBC, Stephen Miran, chair of the Council of Economic Advisers, said that “as the world’s largest source of consumer demand, the U.S. holds all the leverage, which means foreign suppliers will have to eat the economic burden or ‘incidence’ of the tariffs.” 

Assessing the impact of the administration’s full economic agenda has been a challenge for central bank leaders. The Federal Open Market Committee decided to leave its target for the federal funds rate unchanged at the meeting in March. 

The Fed targets its overnight borrowing rate at between 4.25% and 4.5%, with the effective federal funds rate at 4.33% on March 31, according to the New York Fed. The core personal consumption expenditures price index inflation rate rose to 2.8% in February, according to the Commerce Department. Forecasts of U.S. gross domestic product suggest that the economy will continue to grow at a 1.7% rate in 2025, albeit at a slower pace than what was forecast in January.  

Consumers in the U.S. and businesses around the world are bracing for impact. 
 
“There is a reason why companies went outside of the U.S.,” said Gregor Hirt, chief investment officer at Allianz Global Investors. “Most of the time it was because it was cheaper and more productive.” 

Watch the video above to learn how much inflation tariffs may cause.

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Economics

Trump’s tariff gambit will raise the stakes for an economy already looking fragile

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U.S. President Donald Trump speaks alongside entertainer Kid Rock before signing an executive order in the Oval Office of the White House on March 31, 2025 in Washington, DC. 

Andrew Harnik | Getty Images

President Donald Trump is set Wednesday to begin the biggest gamble of his nascent second term, wagering that broad-based tariffs on imports will jumpstart a new era for the U.S. economy.

The stakes couldn’t be higher.

As the president prepares his “liberation day” announcement, household sentiment is at multi-year lows. Consumers worry that the duties will spark another round of painful inflation, and investors are fretting that higher prices will mean lower profits and a tougher slog for the battered stock market.

What Trump is promising is a new economy not dependent on deficit spending, where Canada, Mexico, China and Europe no longer take advantage of the U.S. consumer’s desire for ever-cheaper products.

The big problem right now is no one outside the administration knows quite how those goals will be achieved, and what will be the price to pay.

“People always want everything to be done immediately and have to know exactly what’s going on,” said Joseph LaVorgna, who served as a senior economic advisor during Trump’s first term in office. “Negotiations themselves don’t work that way. Good things take time.”

For his part, LaVorgna, who is now chief economist at SMBC Nikko Securities, is optimistic Trump can pull it off, but understands why markets are rattled by the uncertainty of it all.

“This is a negotiation, and it needs to be judged in the fullness of time,” he said. “Eventually we’re going to get some details and some clarity, and to me, everything will fit together. But right now, we’re at that point where it’s just too soon to know exactly what the implementation is likely to look like.”

Here’s what we do know: The White House intends to implement “reciprocal” tariffs against its trading partners. In other words, the U.S. is going to match what other countries charge to import American goods into their countries. Most recently, a figure of 20% blanket tariffs has been bandied around, though LaVorgna said he expects the number to be around 10%, but something like 60% for China.

What is likely to emerge, though, will be far more nuanced as Trump seeks to reduce a record $131.4 billion U.S. trade deficit. Trump professes his ability to make deals, and the saber-rattling of draconian levies on other countries is all part of the strategy to get the best arrangement possible where more goods are manufactured domestically, boosting American jobs and providing a fairer landscape for trade.

The consequences, though, could be rough in the near term.

Potential inflation impact

On their surface, tariffs are a tax on imports and, theoretically, are inflationary. In practice, though, it doesn’t always work that way.

During his first term, Trump imposed heavy tariffs with nary a sign of longer-term inflation outside of isolated price increases. That’s how Federal Reserve economists generally view tariffs — a one-time “transitory” blip but rarely a generator of fundamental inflation.

This time, though, could be different as Trump attempts something on a scale not seen since the disastrous Smoot-Hawley tariffs in 1930 that kicked off a global trade war and would be the worst-case scenario of the president’s ambitions.

“This could be a major rewiring of the domestic economy and of the global economy, a la Thatcher, a la Reagan, where you get a more enabled private sector, streamlined government, a fair trading system,” Mohamed El-Erian, the Allianz chief economic advisor, said Tuesday on CNBC. “Alternatively, if we get tit-for-tat tariffs, we slip into stagflation, and that stagflation becomes well anchored, and that becomes problematic.”

Tariffs could be a major rewiring of the domestic and global economy, says Mohamed El-Erian

The U.S. economy already is showing signs of a stagflationary impulse, perhaps not along the lines of the 1970s and early ’80s but nevertheless one where growth is slowing and inflation is proving stickier than expected.

Goldman Sachs has lowered its projection for economic growth this year to barely positive. The firm is citing the “the sharp recent deterioration in household and business confidence” and second-order impacts of tariffs as administration officials are willing to trade lower growth in the near term for their longer-term trade goals.

Federal Reserve officials last month indicated an expectation of 1.7% gross domestic product growth this year; using the same metric, Goldman projects GDP to rise at just a 1% rate.

In addition, Goldman raised its recession risk to 35% this year, though it sees growth holding positive in the most-likely scenario.

Broader economic questions

However, Luke Tilley, chief economist at Wilmington Trust, thinks the recession risk is even higher at 40%, and not just because of tariff impacts.

“We were already on the pessimistic side of the spectrum,” he said. “A lot of that is coming from the fact that we didn’t think the consumer was strong enough heading into the year, and we see growth slowing because of the tariffs.”

Tilley also sees the labor market weakening as companies hold off on hiring as well as other decisions such as capital expenditure-type investments in their businesses.

That view on business hesitation was backed up Tuesday in an Institute for Supply Management survey in which respondents cited the uncertain climate as an obstacle to growth.

“Customers are pausing on new orders as a result of uncertainty regarding tariffs,” said a manager in the transportation equipment industry. “There is no clear direction from the administration on how they will be implemented, so it’s harder to project how they will affect business.”

While Tilley thinks the concern over tariffs causing long-term inflation is misplaced — Smoot-Hawley, for instance, actually ended up being deflationary — he does see them as a danger to an already-fragile consumer and economy as they could tend to weaken activity further.

“We think of the tariffs as just being such a weight on growth. It would drive up prices in the initial couple [inflation] readings, but it would create so much economic weakness that they would end up being net deflationary,” he said. “They’re a tax hike, they’re contractionary, they’re going to weigh on the economy.”

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Economics

Euro zone inflation, March 2025

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A man pushes his shopping cart filled with food shopping and walks in front of an aisle of canned vegetables with “Down price” labels in an Auchan supermarket in Guilherand Granges, France, March 8, 2025.

Nicolas Guyonnet | Afp | Getty Images

Annual Euro zone inflation dipped as expected to 2.2% in March, according to flash data from statistics agency Eurostat published Tuesday.

The Tuesday print sits just below the 2.3% final reading of February.

So called core-inflation, which excludes more volatile food, energy, alcohol and tobacco prices, edged lower to 2.4% in March from 2.6% in February. The closely watched services inflation print, which had long been sticky around the 4% mark, also fell to 3.4% in March from 3.7% in the preceding month.

Recent preliminary data had showed that March inflation came in lower than forecast in several major euro zone economies. Last month’s inflation hit 2.3% in Germany and fell to 2.2% in Spain, while staying unchanged at 0.9% in France.

The figures, which are harmonized across the euro area for comparability, boosted expectations for a further 25-basis-point interest rate cut from the European Central Bank during its upcoming meeting on April 17. Markets were pricing in an around 76% chance of such a reduction ahead of the release of the euro zone inflation data on Tuesday, according to LSEG data.

The European Union is set to be slapped with tariffs due in effect later this week from the U.S. administration of Donald Trump — including a 25% levy on imported cars.

While the exact impact of the tariffs and retaliatory measures remains uncertain, many economists have warned for months that their effect could be inflationary.

This is a breaking news story, please check back for updates.

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