The Simple Version

15% Withholding. That's It.

When US companies pay Chinese biotechs, Treasury keeps 15%. Covers drugs, APIs, CDMOs, and CROs. Generates $5-6B/year by 2030. China bears 80%+ of the burden—not American patients.

How It Works

1

US Company Pays China

BMS owes Legend Biotech $100M in royalties for CARVYKTI.

2

Treasury Withholds 15%

$15M goes to the CHINA PAYS Fund. Legend receives $85M.

3

Fund Invests in US Biotech

Grants for domestic R&D, manufacturing, and workforce training.

Why Withholding Beats a Revenue Levy

Revenue levy (old approach)

  • • US company pays based on drug sales
  • • Burden split: 50% China, 35% US co, 15% patients
  • • Complex progressive tiers needed for fairness

Withholding (this approach)

  • • Chinese company receives less money
  • • Burden split: 85% China, 10% US co, 5% patients
  • • One flat rate. Simple.

What It Covers

Any payment from a US entity to a Chinese biotech entity. Not just licensed drugs.

Category2030 Payments to China15% Withholding
Licensed drugs
Royalties, milestones, profit-sharing
$4-5B$600-750M
APIs & Key Starting Materials
80%+ US dependency for antibiotics, analgesics
$12-15B$1.8-2.3B
CDMO Services
Contract manufacturing (WuXi, etc.)
$8-10B$1.2-1.5B
CRO Services
Clinical trials, research outsourcing
$4-6B$600-900M
Total$28-36B$4.2-5.4B

Exempt

  • Orphan drugs — Rare disease treatments (<200K patients)
  • Generics — Already low-margin, would destroy viability
  • Pandemic countermeasures — HHS-designated critical medicines

50% Manufacturing Offset

Companies that invest in US API manufacturing or biomanufacturing can offset up to 50% of withholding. $1 invested = $1 credit. Encourages reshoring without complex credit tiers.

Who Actually Pays?

Chinese companies. They can't pass this to US consumers because they don't control US drug prices.

Why Chinese Biotechs Absorb the Cost

  • ✓No alternative market. US pays 250% more than other OECD countries. They need us more than we need them.
  • ✓Already accepted BIOSECURE uncertainty. A 15% haircut is better than losing US market access entirely.
  • ✓Can't raise prices. US licensees (BMS, Merck, J&J) control pricing. Chinese licensors just receive payments.
  • ✓$28B+ at stake. Projected 2030 US revenue from Chinese-origin products. They won't walk away.

Burden Distribution

Chinese companies80-85%
US pharma companies10-12%
US patients5-8%

Based on tax incidence research for inelastic pharmaceutical demand.

System-Wide Patient Impact: Negligible

0.5%

Chinese products as % of US drug spending

×7%

Patient pass-through portion

=0.035%

System-wide cost impact

Revenue Projections

Conservative estimates based on current market trends and announced deals.

2026
$1.5B
2028
$3.2B
2030
$5-6B
10-Year Total
$40-50B

For Context

  • NIH budget: ~$48B/year — this adds 10%+
  • CHIPS Act: $52B over 5 years — similar scale
  • UK VPAG: ~$3.5B/year — we exceed this

Fund Priorities

  • 60% — Domestic R&D grants (early-stage, translational)
  • 25% — Biomanufacturing infrastructure
  • 10% — Workforce development
  • 5% — Administration (capped)

Anti-Gaming Rules

Three rules prevent the obvious workarounds.

1. Look-Through

Payments to any entity where a Chinese person retains economic interest are treated as payments to China. No Delaware shell company games.

2. Substance-Over-Form

"Supply agreements" with exclusive territories and sales-based payments are recharacterized as licenses. Label doesn't matter; economics do.

3. 10-Year Clawback

Companies claiming the manufacturing offset can't expand China capacity for 10 years. Violate it, pay back the credit plus 10% penalty.

The Whole Policy

15%

Withholding on payments to Chinese biotech entities

4

Categories: drugs, APIs, CDMOs, CROs

50%

Offset for US manufacturing investment

$5-6B

Annual revenue by 2030

No complex progressive tiers. No multiple credit multipliers. No phase-ins. One rate, applied at the source, where China can't pass it to American patients.

Read Draft BillSee the Critique