Early in the COVID-19 pandemic, a global shortage of hospital gowns, gloves, surgical masks, and respirators caused policymakers around the world to panic. This paper examines international trade in this personal protective equipment (PPE) during the crisis, with a focus on China, the European Union, and the United States. As the pandemic first hit, China increased imports and decreased exports of PPE, removing considerable quantities of supplies from global markets. For the European Union and United States, the decrease in their imports from China was not immediately replaced by increased trade from other foreign suppliers. Early shortages led to EU and US export controls on their own, domestically produced PPE and other extraordinary policy actions, including a US effort to reserve for itself supplies manufactured in China by a US-headquartered multinational. By April 2020 China’s exports had mostly resumed, and over the rest of the year its export volumes of some products surged, more than doubling compared to pre-pandemic levels. But China’s export prices also skyrocketed and remained elevated through 2020, reflecting severe and continued shortages. This paper documents these facts. It also explores these and other government actions, such as US trade war tariffs and the emergence of US industrial policy in the form of over $1 billion of subsidies to build out its domestic PPE supply chain, as well as potential lessons for future pandemic preparedness and international policy cooperation.

To read the full working paper from the Peterson Institute for International Economics (PIIE), please click here. 

The post How COVID-19 Medical Supply Shortages Led to Extraordinary Trade and Industrial Policy appeared first on WITA.

Dear Senators and Representatives:

On behalf of National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, I write urging you to avoid adding burdensome “Buy American” mandates to the Fiscal Year (FY) 2021 National Defense Authorization Act (NDAA). “Buy American” requirements for prescription drugs, in particular, could lead to shortages, higher costs, and less access for the patients and providers who need these treatments the most.

One bill that some lawmakers have expressed interest in including in the FY 2021 NDAA is the Pharmaceutical Independence Long-Term Readiness Reform Act (H.R. 4710).^[1] This bill, which has attracted support from both Republican and Democratic Representatives, would require the Departments of Defense and Veteran Affairs to “only acquire and purchase American-made and Federal Drug Administration approved raw materials, medicines, and vaccines for the Department of Defense.” The legislation defines “American-made” materials, medicines, and vaccines as ones “supplied from, created, or supplied by the United States, including any territory or possession of the United States.” While the bill includes an exception allowing the Departments to obtain such materials “from a trusted foreign supplier” if such a scenario is “unavoidable,” the bill’s authors do not define who is a “trusted foreign supplier” nor what constitutes an “unavoidable scenario.”

NTU Foundation warned lawmakers last year about the many pitfalls of protectionism in U.S. defense spending, with Bryan Hickman writing:

“At least in recent years, this debate has focused more on parochial interests and populist rhetoric, neither of which really serves the needs of the military or the DIB. Some may also argue that defense spending is too important to subject to the same thrift and scrutiny applied elsewhere. However, in reality, the opposite is true. With ever-expanding debts and deficits, the United States should never settle for spending blindly with no accountability, regardless of any national security implications. Moreover, with a growing list of increasingly complex threats to America’s security, military spending should be efficient and provide the best possible resources and equipment to the men and women in uniform. Policies that needlessly restrict competition in order to protect U.S. companies and contractors undermine these objectives by increasing long-term costs and reducing the quality of products purchased and placed into military service. Worst of all, they often do so to serve political ends.”^[2]

These concerns are particularly pertinent as the national debt soars in the wake of the COVID-19 pandemic and recession.

Besides glaring issues with the legislation’s lack of specificity on key terminology, and with protectionism in U.S. defense spending already writ large, any “Buy American” requirements for the Department of Defense will only backfire on military leaders and American troops. Recently, more than 250 economists sent a letter to President Trump, Speaker Pelosi, and Leader McConnell warning them about “Buy American” requirements for medical supplies and pharmaceutical products. They wrote:

“Current shortages of critical medical goods in the Covid-19 pandemic have revealed to all the desirability of diversifying sources of supply and increasing inventory of storable medical goods. Diversifying supply sources and increasing inventories will be costly, but a broad Buy America regime will be more costly. The variety, supply, and price of goods available to Americans will suffer under a broad Buy America regime. Taxpayers and patients will pay more for drugs and medical supplies. Smart policies such as federal government stockpiling look more promising.”^[3]

Some recent “Buy American” requirements appear aimed at China, given misperceptions about China’s role in America’s medical supply chain. While the federal government can and should hold China accountable for alleged abuses and misconduct, a “Buy American” requirement for medical goods – applied to the Departments of Defense and Veteran Affairs as proposed in H.R. 4710, or to every federal agency as proposed by some in the Trump administration – would harm America and its trade and security allies first and foremost, not China.

NTU Foundation has noted that a plurality of U.S. pharmaceutical imports come from Ireland, a close ally. Germany, another ally, is next on the list, followed by three more allies: Switzerland, Italy, and India. China is 17th on the list, supplying only 1.2 percent of U.S. pharmaceutical imports in 2019.^[4] Even when accounting for active pharmaceutical ingredients (APIs), a narrower category, only 13 percent of API manufacturers supplying the U.S. market are in China, while 28 percent are here in the U.S. and 59 percent are located around the rest of the world.^[5]

Many policymakers pushing “Buy American” requirements want to shore up domestic manufacturing of medical goods and supplies. While a global supply chain for medical goods remains critical for American providers and patients, boosting domestic manufacturing for some of these products remains a legitimate aim. NTU has outlined a number of policies Congress can pursue to make it easier for medical goods and supplies manufacturers to invest in America, while still retaining a robust global supply chain. Our options include:

• Suspending tariffs on medical products that help the U.S. fight the pandemic;
• Enacting broad-based changes to the tax code that make it less expensive for pharmaceutical innovators to onshore their production to the U.S., such as full and immediate expensing;
• Correcting the Tax Cuts and Jobs Act’s mistreatment of research and development (R&D) costs, and;
• Relaxing or repealing outdated regulations that inhibit pharmaceutical R&D and approval in the U.S.^[6]

Any of the above would be far more productive and less destructive for patients and taxpayers than “Buy American” mandates, and we stand ready to work with Congress to implement them in a future COVID-19 relief or stimulus package. Thank you for your consideration, and should you have any questions I am at your service.

Sincerely,

Andrew Lautz

Policy and Government Affairs Manager

Citations

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