Kimberly Ann Elliott
President Donald Trump’s aggressive unilateralism on trade appears to be driven by his belief that making imported goods more expensive will lead multinational companies—foreign and domestic, but especially American—to relocate production facilities to the United States. There is nascent evidence that Trump’s trade war with China has caused some reshuffling of supply chains, but mainly to other parts of Asia, not to America. Now, though, some trade hawks in the administration appear to view the coronavirus pandemic as an opportunity to encourage firms to move their supply chains to the U.S., no matter the cost.
The Trump administration is not the only government looking to reduce reliance on imports of critical medical equipment and supplies. French President Emmanuel Macron recently expressed sympathy for the idea, and his finance minister, Bruno Le Maire, has reportedly directed French companies to review their supply chains and suggested that they diversify away from China and the rest of Asia. But the European Union has authority over trade policy for its members, and the bloc’s director-general for trade, Sabine Weyand, recently expressed skepticism that any country—even a whole continent—could achieve self-sufficiency in these or other products.
That means new protectionist policies are more likely to gain traction in Washington. Clearly, Trump only likes trade on terms that he thinks promote American manufacturing. He has repeatedly said that companies that don’t want to pay increased tariffs on imports of steel and aluminum, or a wide variety of products from China, should produce more domestically. During talks on the U.S.-Mexico-Canada Agreement, the successor to NAFTA, American negotiators insisted on restrictive rules of origin for automobiles to force producers to use more American content. The pandemic is likely to reinforce Trump’s belief that “there are critical technologies, critical resources, reserve manufacturing capacity that we want here in the U.S. in case of crisis,” Elizabeth Economy, a senior fellow at the Council on Foreign Relations, recently told The New York Times.
Reportedly with Trump’s enthusiastic backing, White House trade adviser Peter Navarro has said that he is working on an executive order requiring federal government agencies to purchase pharmaceuticals and other “medical countermeasures” to COVID-19 from domestic sources. The draft order reportedly lacks a waiver, typically included in such “buy American” policies, to allow foreign purchases when domestic supplies are unavailable or too expensive.
Navarro is not alone in his push to encourage more domestic production of designated medical supplies. Republican Sen. Josh Hawley, a close Trump ally from Missouri, wrote recently in The Washington Post that “it is past time to secure our supply chains by adopting strong local-content requirements for all industries essential to our crisis response,” though both he and Navarro argue that such measures should be introduced only after the current emergency ends.
The danger of such a policy—even if it is relatively narrow and takes effect once the coronavirus pandemic subsides—is two-fold. First, some observers suspect that Navarro views this executive order as the camel’s nose under the tent, and that he would quickly try to expand its coverage to other areas of the economy. Already, a number of private sector groups and think tanks are calling for the U.S. to adopt a new industrial policy as part of its economic recovery plan. That could get very costly if it means protecting or subsidizing inefficient firms, especially if they are chosen for their political influence rather than their strategic value.
Strong-arm efforts to bring medical supply chains to the U.S. are likely to fail, and would result in even more tragic consequences the next time a public health emergency hits.
Second, a strict “buy American” policy would make it more difficult and expensive to replenish the national stockpile of pandemic response supplies, which has now been largely depleted. And it would actually make medical supply chains less resilient by reducing the number of available suppliers. Such a policy would also likely violate U.S. commitments under the World Trade Organization’s Government Procurement Agreement, which could result in retaliatory trade measures against sectors of the U.S. economy beyond those covered in the executive order.
Navarro has gotten pushback from other economic and health advisers, as well as parts of the private sector that would be affected, which might explain why the executive order has not been finalized. But simply ignoring the fragility of medical supply chains is not the right response, either. Even before the pandemic, America’s pharmaceutical industry relied heavily on imports of the active pharmaceutical ingredients from which medicines are made. Over 80 percent of these ingredients, and almost all of the ones going into antibiotics, are imported from China and India. In recent years, the Food and Drug Administration has recalled a number of common drugs to treat conditions like high blood pressure and heartburn because of concerns that they had been contaminated with cancer-causing substances. Part of the difficulty is in monitoring conditions in manufacturing plants overseas.
As a reasonable first step in addressing supply chain problems, Congress included a provision in the coronavirus relief bill, passed in late March, calling on the National Academies of Sciences, Engineering and Medicine to study potential vulnerabilities and make recommendations for how to address them. Coming up with a better way to inspect overseas manufacturing facilities and ensure product quality is an obvious priority. Another is increased public support for research and development into new medical technologies, such as personal protective equipment than can be safely reused.
Another helpful proposal was recently put forth by representatives of two Washington think tanks, the conservative R Street Institute and the left-leaning Progressive Policy Institute. In a recent op-ed, they call for an alternative approach to using the Defense Production Act, a Korean War-era law that gives the executive branch broad power over private manufacturing during national emergencies. So far during the coronavirus pandemic, the White House has focused on the authority the law provides to effectively nationalize certain companies by ordering them to produce critical medical supplies. But the op-ed argues that the government should instead use the law to provide purchase guarantees and then let the market sort out which companies can most efficiently meet the demand. With the reassurance that the government would buy their output even if the pandemic ends sooner than expected, more companies would be comfortable doing what Hanes has done and switch their production lines to make masks or other medical gear. And if not needed in the current crisis, Washington could use those supplies as a down payment on replenishing the national stockpile.
Since he took office three years ago, Trump has been touting his “buy American” policies, trade wars and other efforts to bring jobs back to the United States. But his tariffs have not boosted the manufacturing sector generally. And automobile producers still aren’t sure whether the new rules of origin in the U.S.-Mexico-Canada Agreement will saddle them with higher net costs and lower sales—the exact reverse of what is intended. Strong-arm efforts to bring medical supply chains to the U.S. are just as likely to fail, and would result in even more tragic consequences the next time a public health emergency hits.
Kimberly Ann Elliott is a visiting scholar at the George Washington University Institute for International Economic Policy, and a visiting fellow with the Center for Global Development. Her WPR column appears every Tuesday.
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