China and the United States. What is Next for the U.S. Supply Chain?

By Emily Martin President Trump has long pledged to bring back manufacturing to the United States. Due to COVID-19, new enthusiasm is turbocharging this idea. Specifically, the spread of COVID-19 has prompted related concerns of the United States’ dependency on China. The U.S. medical, defense materials, consumer goods, and food supply chains in particular have long depended on China for manufacturing, simply because of low costs. However, COVID-19 has been “a painful wakeup call that we are too reliant on nations like China for critical medical supplies,” according toU.S Senator Lindsey Graham. When China-made products accounted for around 18 percent of all imports in 2019, it is difficult to refute Senator Graham’s statement. Senators Marco Rubio and Josh Hawley both have crafted bills to aim at protecting America’s supply chains. Senator Rubio’s legislation would require drug manufacturers to report to the Food and Drug Administration the source in which each ingredient was derived from. Thus, it gives the FDA a better picture on the reliance the U.S. has on Chinese products. Additionally, it would halt the sales of selected sensitive goods to China, as well as raise taxes on American companies’ income from China. Senator Hawley’s bill would require that medical device manufacturers report predicted shortages to the FDA. Additionally, greater authority would be granted to the FDA in the event of an expected shortage. His legislation pushes for “generous investment subsidies”, thus encouraging an increase in domestic production of goods. These two bills alone showcase the urgency being placed on our fears of the medical supplies industry’s dependence on China. However, along with the desire to move supply chains out of China and ideally bring them back to the United States, problems and barriers exist. Most cases would require large capital expenditures, such as building completely new factories. But, in order to keep the U.S. out of a steep recession, a public-private partnership may be needed. White House National Economic Council Director Larry Kudlow said that America should “pay the moving costs” of each U.S company that has a desire to get out of China. He is not the only official pushing for American companies to move their operations out of China. Widespread discussions are continuing amongst current government officials, industry executives, and legislative members. Proposals of a private-public partnership continue. The idea of a “reshoring fund” would encourage American companies to rethink and revamp their relationship with China. This fund would be originally stocked with $25 billion. This allocation of funds would move the production of essential goods back to the United States, thus ensuring that even products far down on the supply chain would be sourced domestically. While there are no members of Congress whom have publicly endorsed it, several congressional aides acknowledge its component in the larger push and discussion in Congress. On May 14, President Trump signed an executive order that has the goal to “produce everything America needs for ourselves and then export to the world, and that includes medicines.” It gave a U.S. overseas investment agency improved powers to aid U.S.-based manufacturers. White House trade advisor Peter Navarro is pushing for the federal government to buy more of American made medical goods and drugs. Treasury Secretary Steven Mnuchin and others, want to build trusted networks for drug suppliers and medical suppliers. The State Department is working with foreign governments and agencies that would divert U.S. supply chains from China and allow for diversification. “This includes returning manufacturing to the United States and expanding our base of international manufacturing partners,” said a spokesperson. While we search for international manufacturing partners, the Middle East offers lucrative options. The U.S. originally outsourced key supply chains to China because of cheap labor costs. If we produced antibiotics, for example, at home, the productions cost would increase significantly. However, if we diverted the outsourcing from China to Jordan or Egypt, these costs can remain low. Jordan and Egypt, alike, offer inexpensive labor, while having their own pharmaceutical production capabilities. It is important to note that these countries do have some geopolitical risks, but compared to China, those risks are small. Since China is the second largest exporter of drugs to America according to the FDA, it will take cooperation from our Congressional members for us to disentangle our supply chains. However, recent Washington discussions and actions demonstrate the urge our government officials have to decouple with China. More on China: Newt's Latest Podcasts:

When do you believe the country will hit peak (or high point) of inflation?