On January 5, the U.S. Food and Drug Administration (FDA) approved Florida’s request to import specific drugs directly from Canada. This is the first such approval by the FDA, although several states have requested approval in the past. Florida’s request focuses on prescription drugs in a select number of drug classes covering diabetes, asthma, HIV/AIDS and mental illness, primarily for patients in state-financed Medicaid programs.

In response, Health Canada issued an industry bulletin saying it’s reviewing the FDA decision and warned that wholesale distribution of medicines outside of Canada is prohibited if such distribution could cause or worsen a drug shortage in Canada, adding that Health Canada would act against anyone caught exporting in violation of a prohibition.

Will legalized importing of drugs from Canada into the United States reduce the availability of drugs in Canada? Perhaps—but not for the reasons you might think.

The U.S. market for prescription drugs is much larger than the Canadian market. In 2022, the U.S. accounted for 42.6 per cent of total pharmaceutical sales worldwide compared to 2 per cent for Canada. There’s a high demand for drugs to treat diabetes or prevent its progression in the U.S., and the growing prominence of weight-loss drugs, which are also used to treat diabetes, ensures there will be a large and growing market in the U.S. for this major cost item for state government health insurers. In short, if FDA approval is granted to other U.S. states, and drug prices remain generally much higher in the U.S. compared to Canada, the Canadian government will likely act to restrict the wholesale exports of pharmaceutical drugs given potential U.S. demand.

Of course, when demand for any product exceeds supply at its current market price—and when there are regulatory restrictions on legal market transactions—a black market often develops for that product. But because state health insurers must submit drug-specific requests for FDA approval to ensure that imported medicines are safe, approval would be much harder to obtain if purchases were made on the black market.

Consequently, the FDA’s decision to approve Florida’s request to import drugs from Canada will likely have no direct effect on the availability and prices of drugs in Canada. However, it might trigger U.S. government actions that have an indirect effect.

Here’s how. The Biden administration has made lower drug prices an important priority and passed the Inflation Reduction Act, which allows the federal government to negotiate prices directly with drug companies for some of the costliest brand-name drugs covered by the federal government’s Medicare plan. Moreover, the Trump administration proposed—but did not enact—a plan to lower Medicare payments for certain drugs to the lowest price charged in similar countries. Thus, the two likely candidates in the upcoming presidential election are committed to lowering drug prices.

While the next U.S. administration likely will not challenge any Canadian government embargo on exports of drugs from Canada (since the World Trade Organization permits governments to restrict trade to protect human life and health, as long as such restrictions are not used as a disguise for protectionism), the U.S. might impose its own restrictions on exporting drugs to Canada in part to gain political support in swing-states facing health-care-related budget problems.

Hence, the FDA’s Florida decision might wind up limiting Canadians’ access to pharmaceutical medicines as long as Canadian drug prices remain well below prices in the U.S. Indeed, there’s an increasing risk that Canada’s current regulated drug pricing regime is unsustainable given the political pressure on U.S. politicians to lower drug prices to match those in other countries.