Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
by Jesse Richman and Howard Richman
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. And if they were widely available, face masks could potentially 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 off-line 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 it might threaten to cut off medical supplies in order to pressure the U.S..
On Monday Peter Navarro, trade policy advisor 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 that surviving U.S. manufacturers are 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:
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 back significant pharmaceutical production to the U.S. are both long overdue, and just what the doctor ordered.
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