Our pharmaceutical trade policy needs surgical mask protection

Search Amazon today for face masks, and the product will be unavailable, dramatically marked up, and/or shipping from China.  In the face of the coronavirus pandemic, masks are an essential component of the equipment medical professionals need but one that some hospital systems are also struggling to procure.  If they were widely available, face masks could help Americans reduce the risk of infection as well, since one of the main infection pathways is through breathing the virus in, and masks substantially reduce exposure.

One of the reasons why masks have been in short supply in the U.S. is inevitable: any time there is a major pandemic involving a respiratory infection, there will be mask shortages.  Part of it also involves decisions about trade policy that have systematically made the U.S. more vulnerable to political, economic, and health shocks.

Twenty years ago, most medical masks used in the U.S. were produced in the U.S., about 95 percent.  Today, it's about five percent.  Most of the rest are made in China, which became a particularly big problem when China was the first country to largely go offline economically as a result of efforts to fight the coronavirus epidemic.  With little domestic production capacity, the U.S. is at the mercy of China's ability to manage its supply chain and dependent upon the good graces of a Chinese government that might well choose to prioritize domestic use of masks in a time of shortage.  Mask production is also surprisingly high-tech and capital-intensive, with million-dollar machines involved in making them.

But masks are just one example.  In the U.S., medicine shortages are also likely if China's economy remains largely shut down because most pharmaceutical manufacturing capability has been shipped overseas, and much of that capability has been shipped to China.  China seems aware of the power this gives it in the marketplace, and there are some indications that it will threaten to cut off medical supplies in order to pressure the U.S.

On Monday Peter Navarro, trade policy adviser to President Trump, proposed a policy to begin doing something about this, an executive order mandating U.S. content standards for medical supplies purchased by the federal government.  This is a step in the right direction and should be put in place as soon as possible.  It would potentially help address the problem of surviving U.S. manufacturers being reluctant to make major capital investments to meet what they think will be a short-term spike in demand.

As we think about U.S. medical supply policy, and indeed U.S. trade policy more broadly, we should keep in mind three principles.

  1. Trade should be balanced.  In 2019, the U.S. imported $866 billion more in goods than it exported.  Across many areas of the economy, the result is fewer jobs-producing things Americans need and more debt to finance purchases from abroad, which has transformed the U.S. into the world's largest debtor.  Almost a tenth of that deficit is due to the U.S. dependence on important pharmaceuticals.
  2. Goods in any category should come from many sources.  If 95 percent of face masks were imported, but five percent came from each of 19 different countries spread across the globe, the risk to supply would be much smaller.  We should seek to discourage overreliance on any one supplier.
  3. Either production capacity or reserves need to be larger.  Until sufficient productive capacity comes online, reserve supplies should be maintained for critical medical, energy, and high-technology goods.  Where there is not presently sufficient domestic productive capacity, tariffs should be levied on imports, and reserve stockpiles should be expanded.

Balancing trade and reshoring production of medicine and other medical supplies to the U.S. would potentially generate a major economic boost.  A recent study by the Coalition for a Prosperous America estimated that doing so would produce more than 800,000 jobs.  As the U.S. faces both health and economic risks associated with the pandemic that began in Wuhan, China, actions by both the president and Congress to bring significant pharmaceutical production back to the U.S. are long overdue and just what the doctor ordered.

The Richmans co-authored the 2014 book Balanced Trade, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.

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