Policy Studies Finance and Trade

Building Resilient Medical Supply Chains Through Trade Agreements

Key Points

America’s drug supply is already diverse, secure and resilient. The pandemic has highlighted the remarkable effectiveness of globalized, market-driven supply chains.
Trade restrictions and reshoring policies for pharmaceutical products make America’s drug supply more vulnerable and insecure. Pandemic-related interventions in the United States and other countries have been disruptive, wasteful and counterproductive.
The United States should negotiate new trade rules that foster resilient supply chains for medicines through open trade and international cooperation.. Renew Trade Promotion Authority and pursue a Secure Supply Chain Agreement with reliable partners that would eliminate import barriers, export restrictions and procurement preferences for pharmaceutical products and their ingredients while promoting regulatory harmonization and cooperation.

The COVID-19 pandemic has prompted policymakers to question whether economic globalization has left the United States overly vulnerable to foreign events and actions that could imperil Americans’ access to essential drugs and medical equipment. Many in Congress—as well as the previous and current administrations— believe that supply chain resilience and security can only be achieved through reshoring of pharmaceutical production. The Biden administration has blamed the private sector for sacrificing resilience in a relentless search for efficiency, and has advocated for various interventions and trade restrictions intended to improve resilience by having more drugs and drug ingredients be manufactured in the United States.

But globalization has been vital to the development of America’s thriving pharmaceutical industry. And evidence suggests that existing, market-driven supply chains are already highly diverse and have proven themselves remarkably resilient despite historic strain during the pandemic.

The most direct threat to resilience and security for medicines and medical supplies during the pandemic has come not from foreign sourcing but from the short-sighted actions of anxious governments. The pandemic has prompted the United States as well as its key partners in Europe and Asia to restrict trade in medical products and essential medicines to prevent or alleviate shortages. At best, these restrictions have been wasteful. Many of them have also been counterproductive by reducing the flexibility needed to respond effectively to new developments.

In June 2021, the Biden administration released a comprehensive study describing the state of supply chains in four key industries, including pharmaceuticals. The report advocates various policies to promote more domestic pharmaceutical manufacturing but also offers the vital observation that “it is not feasible, desirable, or realistic to expect every drug needed for American patients to be produced on American soil.” Indeed, the most valuable recommendation in the report is to “increase international cooperation and partner with allies to strengthen supply chain resilience.”

There is an opportunity in the wake of the pandemic to strengthen the resilience and diversity of market-driven supply chains by improving trust among reliable trading partners. Building this trust will require international cooperation and negotiation of new reciprocal trade agreements.

We therefore urge Congress to renew Trade Promotion Authority with an explicit mandate to liberalize and expand trade in drugs and pharmaceutical ingredients with trusted partners in the supply chain. This would pave the way for a new trade pact we call the Secure Supply Chain Agreement, in which the United States and its allies commit to eliminate import tariffs, export restrictions, and procurement preferences while working to harmonize regulatory standards and marketing approval procedures.

The United States should also rejoin the Trans-Pacific Partnership (TPP) to improve America’s access to key markets in Asia and to reduce the region’s reliance on China. Rejoining the TPP would certainly promote America’s leadership in the region—an economic and geopolitical imperative—but it would also give the United States an additional opportunity to strengthen pharmaceutical trade specifically by incorporating the commitments of the Secure Supply Chain Agreement within the TPP. The United States should also work to reach additional trusted partners through limited renegotiation of other existing free trade agreements. Finally, Congress should make pharmaceutical supply chains more secure by maintaining the competitive tax and regulatory environment that makes the United States an attractive place to invest.

Press release: The U.S. Must Partner with Allies to Strengthen Our Supply Chains

Image credit: andov

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