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As the old adage goes, “Desperate times call for desperate measures.” Families, businesses, and the federal government have had to take drastic action to combat the effects of the coronavirus pandemic. This is a crisis unlike any we’ve seen for quite some time. It will take a lot of banding together and a little bit of outside-the-box thinking to get through this with minimal damage to our nation and our economy. Because of this, many government agencies are cutting unnecessary regulatory red tape that is hindering the fight against the virus.
Sen. Chuck Grassley, a Republican from Iowa, has even suggested extending tariff relief for companies struggling financially during this time. However, Peter Navarro, the White House Director of Trade and Manufacturing Policy, seems to be taking the opposite approach. Navarro has brought a draft executive order to President Trump that would put pressure on companies to relocate their supply chains to the United States.
This would be an incredibly costly endeavor. However, this is not new information for those within the White House. White House economic adviser Larry Kudlow said that they are considering tax cuts for those companies who relocate their supply chain or having the government underwrite 100% of the expenses incurred. These are hardly suggestions that indicate these changes won’t have crippling effects on businesses.
We’re not talking about basic moving expenses. What Navarro is describing is relocating a sheer 72% of the supply chain for U.S. active pharmaceutical ingredients. In 2018, the total market size for this industry was over $176 billion. This is not a small fix Navarro is proposing. This would require an epic feat of human engineering to accomplish this and a pure miracle to do it in a time frame that wouldn’t cost people their lives in the midst of this crisis.
The logistics are a nightmare and we are already plagued with shortages. Doctors are running low on swabs to conduct tests. Even with swabs, it is becoming increasingly difficult to conduct the tests because of the lack of masks. Doctors would put themselves at risk otherwise. There’s no reason to put what supply chain we have at risk when problems already exist.
Studies have shown that manufacturing in developed nations like the U.S. can be up to five times more expensive than manufacturing elsewhere. People like Navarro seem to want biopharmaceutical manufacturers to quintuple their costs during crunch time. This cost will either be borne by the manufacturers (which will lead to drastically more expensive equipment and almost certain shortages) or will be borne by the taxpayers at a time where the economy is steadily trending downhill. This is absurdity.
Not only is such a policy illogical, but it is also counterproductive during a crisis situation. When facilities were damaged by hurricanes in 2018, manufacturers worked with the FDA to source needed materials from facilities overseas. Imports from abroad have been a necessary part of flexibility during crises. To adequately address the coronavirus crisis, we need to give the organizations in charge of delivering needed resources more leeway to innovate, not less.
Secondly, the policymakers pushing this “Buy American” executive order are assuming we’re presently living in a vacuum. There’s no reason to believe there won’t be retaliation for such a measure. This will harm U.S. global competitiveness both during this crisis and long after it’s over. With all the talk about deficiencies during the coronavirus outbreak and complaints about drug prices, this is a change we can’t afford ever, least of all now.
In this same vein, this executive order would likely run afoul of a number of U.S. treaty obligations under various World Trade Organization agreements. If the administration actually wants to defend the competitiveness of U.S. industry, it should not make our nation seem like unreliable allies. It also risks these allies limiting exports to the U.S. By following Navarro’s road, we could possibly lose out on a whole host of high-quality products coming into the U.S.
Lastly, and perhaps most obviously, is the fact that it is simply impossible for the manufacture of certain goods to be moved to the U.S. This is due to the local lack of access to certain raw materials and that our workforce is not trained in some of the necessary skills to accomplish what needs to be done. Even if it were possible, it would take maybe 5-10 years (if we’re inclined to be generous) to get such an operation up and running in the U.S.
Also, the pharmaceutical industry spends large sums developing cures and vaccines that protect our families. The diversified supply chain described above is an integral part of that. How many people is Peter Navarro willing to see die while his transition occurs in order to look like he’s being tough on China?
In order to fight this virus, policymakers need to look to break down barriers to solutions, not erect more of them. That is the only way we most efficiently get to the other side of this dismal situation in which we all find ourselves.
Jason Pye (@pye) is a contributor to the Washington Examiner's Beltway Confidential blog. He is vice president of legislative