Trump administration officials and lawmakers from across the American political spectrum are increasingly anxious about the national security implications of sourcing medical supplies from China, as a surge in coronavirus cases across the US has sent demand for drugs and protective gear rocketing.
Republican senator Marco Rubio of Florida, a China hawk, and Elizabeth Warren, the progressive Democratic senator from Massachusetts, have recently joined the likes of White House trade adviser Peter Navarro and US trade representative Robert Lighthizer in raising concerns about medical supply chains that rely heavily on China.
“Unfortunately, like others, we are learning in this crisis that overdependence on other countries as a source of cheap medical products and supplies has created a strategic vulnerability to our economy,” Mr Lighthizer told G20 trade ministers on Monday.
The US imports almost half its personal protective medical equipment, including masks, goggles and gloves, from China, according to figures compiled by Chad Bown at the Peterson Institute for International Economics.
America’s reliance on China for key ingredients in medicines is harder to measure. A recent Senate bill co-sponsored by Mr Rubio, Ms Warren and Connecticut senator Chris Murphy, among others, called for pharmaceuticals companies to report the volume of active ingredients sourced from China to the Pentagon, allowing the defence department to survey US exposure to China in the drugs supply chain.
As part of its trade war with Beijing, the Trump administration had already leaned on US corporations to reshore operations from China, partly through its punitive tariff regime.
In February, as concerns increased about the effect of prolonged coronavirus-related closures of critical facilities in China, Mr Navarro told the Financial Times that the outbreak was a “wake-up call” for the US to reduce its reliance on pharma and medical supply imports from China and the rest of the world.
Now, the rapid spread of the disease in the US is giving the issue new urgency, as healthcare providers and state officials clamour for supplies.
Andrew Cuomo, the New York governor whose state has seen the most coronavirus cases in the US so far, called it a “real cruel twist of fate” that China is now the main manufacturer of ventilators and other equipment that states are desperately trying to acquire to fight the coronavirus outbreak.
“It all comes back to China,” he said on Wednesday.
Analysts say the big question is how the US will persuade companies to reshore manufacturing when they are vehemently opposed to the idea.
While Phrma, the trade body representing US drug manufacturers, agreed with the need to explore ways to “encourage even greater domestic development and manufacturing of medicines”, it added that altering just one element of a supply chain could take “years” and incur “significant costs”.
Congressional staffers and trade lawyers say a complete shift in the way companies think is needed.
“Up until now, most industry supply chains have been designed for efficiency and price competition — where can you get the quality you need at the best price?” said a senior Democratic aide. “We need to redesign the way these supply chains work.”
Rosemary Coates, director of the Reshoring Institute, an organisation that helps companies move supply chains back to the US, said businesses would only consider moving if it was financially beneficial.
“The bottom line is companies are going to make an economic decision based on the total cost,” she said.
Ms Coates said one of the ways in which companies could bring some of their supply chains back to US soil was to automate some of it to eliminate labour costs. That, however, required a high level of upfront capital.
Leaving China can also be logistically difficult. “You don’t just turn off the lights and leave. You have to pay off employment contracts, and you also have to get a permit to leave,” Ms Coates said.
Even the most diehard proponents of reshoring manufacturing for strategically important US companies admit the difficulty of crafting policies to make that happen.
“We want companies to make their products here, and source them here, but they won’t do that unless they make a profit,” said a senior Republican aide. “And we want them to make a profit. The biggest question that we have been grappling with is: how can we incentivise them?”
The Trump administration is considering an executive order implementing “Buy American” rules to force federal agencies to only buy drugs and medical supplies made in the US, according to American media reports.
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Aside from mandating federal bodies to only purchase goods made in the US, policymakers on Capitol Hill have discussed government-backed loans specifically for companies to move supply chains to the US, along with tax breaks as a reward for doing so.
But in the long run there is still doubt it would be enough to make leaving China worth it for US companies.
“They’re going to have to want to do this, and there will have to be a sense of patriotism,” said the Republican aide. “If China cuts off our access to key medical ingredients, that would be devastating.”
Source: Economy - ft.com
