Last week, ministers hailed a new era for economic relations between the United States and Britain. Their freshly inked “Economic Prosperity Deal” wasn’t a full-blown trade agreement, but it reduced some barriers for British cars and beef entering America, slashed UK tariffs on US ethanol, and offered some diplomatic warmth amid President Trump’s chilling global trade battles.

Sadly, the honeymoon didn’t last long. On Monday, Trump issued an executive order aimed at using US government power to slash American drug prices. It brings a new potential headache for Sir Keir Starmer and the NHS: pay higher prices for new drugs or lose access to some entirely.

Trump’s decree vows to use every trade, competition, and regulatory lever to drive American drug prices down to the lowest paid by other countries. If it survives legal hurdles, this “most favoured nation” policy seeks to equalise global drug prices. And that’s a huge deal, given that America pays over four times as much as the UK for branded drugs.

Drug discovery is hugely costly and notoriously risky. Pharmaceutical firms recover the billions spent on uncertain ventures by charging prices far above marginal production costs during new drugs’ patent monopolies. But once the research is done and drugs are available, there’s every incentive for buyers to try to free ride on companies’ sunk investments, the British government included.

Countries with systems like the NHS and its National Institute for Health and Care Excellence (Nice) use their monopsony purchasing power to bargain hard with drug companies. Firms face a stark choice: accept slimmer margins than in the US to serve additional customers, or walk away. Brits therefore miss out on some new drugs, or get them later, with patients suffering. Yet we do get many other drugs at substantially lower prices than Americans.

The net result is that American insurers and government programmes, less sensitive to higher prices, end up bankrolling most global pharma innovation. In fact, around 70 per cent of pharmaceutical profits come from the US. Trump therefore isn’t entirely wrong to denounce European “freeloading” and that Americans “subsidise socialism abroad”. We reap the benefits of American patients and taxpayers funding risky research, after all.

If Trump’s policy bites, though, this could change. Drug companies won’t quietly slash US prices to Europe’s levels. Far more likely, they’ll raise prices outside America, especially in tightly controlled markets such as ours. Economic modelling suggests that if US prices halved, prices elsewhere would need to rise anywhere between 28 and 300 per cent to keep global R&D spending intact. With the NHS’s branded drugs bill (after rebates) already north of £10 billion per year, any fiscal hit would be painful.

Of course, the NHS might decline to pay higher prices. Yet then drug companies would be incentivised to withhold their newest treatments to avoid a low British price setting a less profitable price in America. European patients already suffer delays accessing cutting-edge medicines and Trump’s plan could extend those waits.

Either way, Trump’s new price controls will reduce global pharma revenue, so curbing firms’ incentives for drug innovation. Economists Darius Lakdawalla and Dana Goldman estimate that a 10 per cent drop in revenues would lead to 2.5 per cent to 15 per cent fewer new drug approvals. And that’s before some countries start panicking and meddling with patent laws, compounding these disincentives.

Pharma stocks plunged then recovered as the details emerged. Investors are uncertain that Trump’s policy will survive the political and legal minefield ahead. Still, Labour shouldn’t ignore the warning of Trump’s message.

In recent months, drug firms have declared that the rebates they pay the NHS are unsustainable. The US-UK skinny trade deal saw Starmer’s government pledge to “improve the overall environment for pharmaceutical companies”. Trump’s order ups the ante. The government may face the grim choice of having to spend more taxpayer cash on drugs, or see patients suffer fewer treatments.