When Protectionism Endangers Lives
By Merrill Matthews
Peter Navarro, one of President Trump's trade advisors, recently slammed pharmaceutical lobbyists for opposing his "Buy American" executive order.
In his view, these "well-heeled Swamp Creatures" only oppose the proposed order -- which reportedly would require government agencies to purchase medicines and medical supplies from domestic suppliers -- because it'd hurt their companies' bottom lines.
But there are several reasons for relying on the diversity created by international supply chains that have nothing to do with pharmaceutical company profits. Think of it as the pharmaceutical equivalent of an investment advisor telling a client not to put all of his eggs in one basket.
While the coronavirus pandemic has demonstrated that the labor force of key pharmaceutical supply-chain countries can be hit hard, disrupting manufacturing, so can the United States.
Suppose Navarro's proposed executive order had gone into effect a few years ago, and drug manufacturers had moved their plants to New York and New Jersey -- which largely shut down.
Navarro says his EO would not prohibit the United States from buying from other countries in a pandemic. But foreign companies may not have the capacity to begin filling massive orders from the United States.
What the pandemic has demonstrated is the need for MORE diversity in the supply chain, not less. If anything, drug makers rely on too few foreign countries for their raw materials, not too many. The more diversified the supply chain, the less vulnerable it is to disruptions.
Offshoring has another significant benefit: it helps keeps prices down, especially on generics. That benefits patients, not pharmaceutical companies.
About 90 percent of U.S. prescriptions are generics, and more than 95 percent of those prescriptions are filled for $20 or less. Forcing companies to make their drugs and medical devices in the United States would lead to significant price increases -- hardly a win for patients.
And that reshoring process would take years under ideal conditions, providing virtually no relief in this pandemic.
During a national health emergency, with tens of millions of workers under strict orders to stay home, it's simply impossible. Pharmaceutical firms would quickly run into shortages of everything from allergy medicines and statins to antibiotics.
To be sure, strengthening America's manufacturing sector is a worthy goal. And Trump has taken the biggest step he could take to achieve that goal by passing his tax reform package.
The U.S. Congressional Research Service has shown that the U.S. offshoring trend began in the late 1980s, which was precisely when other countries began cutting their corporate tax rates. The worldwide average corporate tax rate began declining from just under 40 percent in the late '80s to a little more than 20 percent by 2017. The U.S. corporate tax rate was 35 percent from 1986 until tax reform lowered it to 21 percent, finally making the United States tax-competitive once again.
Navarro's executive order wouldn't make our economy stronger. And it certainly wouldn't make American patients any healthier or safer. Instead, it would compound the shortages brought on by COVID-19 and put countless lives at risk.
Low taxes and a lite-touch regulatory environment will encourage manufacturers of all stripes to reshore at least part of their operations. But they need the freedom and flexibility to maintain diverse supply chains so that no pandemic or a natural disaster threatens supplies.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.
