Scott Lincicome on U.S. Medical Supplies

by Don Boudreaux on April 29, 2020

in Current Affairs, Myths and Fallacies, Seen and Unseen, Trade

If you’re interested in gaining a clearer and deeper understanding of the detailed facts and the economic principles of America’s role in the global supply chain web of medical supplies, read this superb post by Scott Lincicome.

Here are some slices, but do read the whole thing:

But isolated import‐​share figures tell us very little about actual “vulnerabilities,” because they omit domestic production and local inventories. According to a new study from the St. Louis Federal Reserve, China supplied almost 30 percent of all imported “essential medical equipment” (hand sanitizer, masks, personal protective equipment, ventilators, etc.) in 2018 but accounted for only 9 percent of total domestic consumption because American producers supplied the vast majority (more than 70 percent) of these products. The U.S. does indeed need better data on pharmaceutical production (something the CARES Act seeks to remedy), but it’s clear that the United States still makes a lot of generic drugs — and even plays host to one of the largest ibuprofen plants in the world (in Texas). So China’s share of imports, without more context, is pretty meaningless.

At the same time, we have massive stockpiles of other critical drugs to prepare for crisis‐​related spikes in demand. When India temporarily banned hydroxychloroquine exports, for example, everyone freaked out because India makes a lot of it. The freakout quickly dissipated, however, when it was revealed that we already had 31 million doses (donated by multinational drug companies) in the Strategic National Stockpile. State and local governments have since stockpiled 30 million more pills, and local pharmacies have their own inventories. Should hydroxychloroquine turn out to be a miracle drug (please consult your doctor!), it looks like we’ll be just fine, regardless of what India does next.

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Moreover, there is a thick historical record showing that protectionism, in whatever form, fails to produce a lean, thriving, and innovative domestic industry. Instead, past cases such as steel tariffs and Jones Act shipping restrictions show that government efforts to protect industries deemed “essential” to national security result not only in foreign retaliation and higher consumer costs but also in bankruptcies, layoffs, lower domestic output (e.g., fewer ships), and a small cadre of politically connected zombie companies whose overcompensated executives divert corporate resources from innovation and efficiency to lobbying and executive (not worker) pay. That’s precisely what you don’t want from an industry making life‐​saving pharmaceuticals or medical devices.

On the other hand, there is ample evidence that “globalization” (i.e., the free flow of goods, services, capital, and information) has been an absolute blessing for the medical field and, thus, humanity — well beyond simply cheap PPE and generic drugs. Today, doctors and researchers from around the world work together to cure diseases that once killed hundreds of thousands of people each year. And it’s just this type of collaboration that might help to beat the current pandemic: as recently documented by the Cato Institute’s Chris Edwards, “globally, dozens of biotech and pharmaceutical companies are rushing to develop vaccines and treatments for covid‐​19 using a diversity of approaches.” Some of this might even involve (gasp!) China, as the Martin Sandbu of the Financial Times notes: “Within weeks of the new coronavirus’s emergence, Chinese scientists had sequenced its genome and shared their knowledge with the entire world.” Sandbu rightly adds that such a move “was made possible by our unprecedented degree of globalisation of technology, knowledge and communication, which in turn had piggybacked on expanding economic exchange.” Indeed.

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