Trump’s Buy American Order Will Make Drug Supply More Vulnerable
What we really need is fewer politicians meddling in industries they don’t understand.
To further the goal of “reshoring” the U.S. pharmaceutical industry, the Trump administration recently issued an executive order requiring government agencies to buy essential drugs with only American-made ingredients, because “we cannot rely on China and other nations across the globe that could one day deny us products.”
And this isn’t just a pet issue for President Trump. Several bills with similar goals have been proposed by members of Congress eager during this election year to look tough on China, and the Biden campaign has issued its own plan that also includes government purchases of U.S.-made drugs. At the Democratic National Convention, Biden promised to have more medical supplies made in America, “so we will never again be at the mercy of China and other foreign countries in order to protect our own people.”
Bipartisan problem-solving is nice, but there’s one big problem—the U.S. drug supply is not in fact dependent on Chinese ingredients. Not even close.
According to the Food and Drug Administration, there are about 2000 facilities worldwide that manufacture ingredients in prescription drugs for the U.S. market. Over a quarter of those factories (28 percent) are located in the United States. The next most common locations are Europe with 26 percent, India with 18 percent and then China—in fourth place—with only 13 percent.
And a recent study estimating the source of all APIs consumed in the United States found that a majority of the country’s pharmaceutical ingredients (54 percent by value) are made domestically. The next most common source countries are Ireland with 19 percent and China with only 6 percent.
That 6 percent is too small a share to justify claiming the U.S. drug supply is dependent on China, but some people may still think the United States would benefit from more domestic drug manufacturing.
Using imported ingredients, however, does not make the U.S. drug supply more vulnerable in a crisis. On the contrary, access to foreign sources makes pharmaceutical supply chains more resilient by diversifying the firms, locations and products companies can rely on when unforeseen events disrupt the status quo.
This resilience has been on full display in 2020 for anyone willing to see it.
As factory shutdowns, demand spikes and shifting consumption patterns caused chaos in other industries—especially in the early months of the pandemic—the U.S. pharmaceutical market has weathered Covid-19 with no serious disruptions. It’s hard to see how any amount of government intervention could improve the resiliency of a supply chain capable of performing perfectly during a catastrophic, 100-year pandemic.
To be sure, the current crisis has forced some pharmaceutical companies to scramble to find new suppliers and to tap into stockpiles. But because they are tied in to global supply markets, they’ve been able to do so successfully.
Meanwhile, having access to global suppliers has helped make the U.S. pharmaceutical industry a major driver of economic growth, employing about 300,000 Americans and providing over $60 billion per year of domestic investment in research and development. As a result, the United States is one of the world’s leading exporters of pharmaceutical products.
In short, America’s drug supply is resilient and efficient because it is global, diverse and market-driven—qualities that are threatened by efforts to force manufacturers to use only American-made ingredients. What reshoring will actually do is make the industry more vulnerable while creating more red tape and more opportunities for rent-seeking, all at taxpayer expense.
Trump’s Buy American order explicitly requires government agencies (like the Department of Veterans Affairs) to spend up to 25 percent more on essential drug purchases if an available product is made with American ingredients. For the companies that already happen to use U.S.-made ingredients, this law is just a taxpayer-funded handout.
Ironically, if the order actually succeeds in getting other companies to concentrate more manufacturing in the United States, it will create the very same vulnerability that reshoring advocates claim they are trying to fix.
That’s because pushing American drug makers to rely on domestic ingredients will make their supply chains less flexible when a crisis occurs. Having fewer suppliers that are more geographically concentrated increases the risk that one unforeseen event could eliminate a company’s entire supply network.
And companies will be less willing to make necessary changes when by doing so they risk losing their lucrative Buy American privileges. At the exact moment when businesses need to make quick, creative decisions, patients will instead be at the mercy of lawyers and bureaucrats.
A better approach would be to let businesses continue deciding for themselves where to source their products, a policy that so far has led to remarkably resilient supply chains that already include a lot of American ingredients. It makes no sense to burden a globally dominant American industry with big-government regulation and protectionist industrial policy to solve a problem that doesn’t exist.
Image credit: Evan El-Amin