Here’s a letter to the Wall Street Journal.
Editor:
Shyam Sankar and Julia Dimon offer some sound advice to increase U.S. production of pharmaceutical products, such as renewing (as they put it) “the bonus depreciation for capital equipment included in the 2017 Tax Cuts and Jobs Act and extend it to commercial structures such as factories” (“The Bitter Pill of Reliance on China,” April 18). But their case for protective tariffs on Chinese-made pharmaceutical products is weak.
If it’s really true, as the authors say, that more than 100 generic active pharmaceutical ingredients “can be sourced only in China,” then tariffing these ingredients can serve no good purpose. Such tariffs would only block our access to these ingredients without encouraging American-made substitutes, as no such substitutes are possible. Better to acquire and stockpile as many of these ingredients as possible for as long as possible, and at prices as low as possible, before a trade war blocks our access to them.
In fact, though, it’s unlikely that no good substitutes are available outside of China. What appear to be ingredients that can be sourced only in China are almost certainly ingredients that are now produced in China at such low costs that no one outside of China finds their production profitable. If the prices of these ingredients outside of China were to rise, other countries would join China in producing them.
But neither this fact nor any other that the authors identify justifies tariffs. No one has stronger incentives to take appropriate precautions against disruptions of foreign supplies of pharmaceutical ingredients than do American pharmaceutical producers who use these ingredients. These producers know better than anyone else the risks of supply disruptions and, being more familiar with the details of this market than are White House officials, are strongly motivated – and completely able without government intervention – to take suitable steps to minimize the damage from such disruptions. The same is true for pharmaceutical wholesalers in the U.S.
The best thing Washington can do is to end its calamitous trade war – a move that would alone dramatically lower the risk of supply disruptions.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
