Politico reports that President Biden will sign an executive order today to review the global supply chains for medical goods and other “key industries,” in order “to determine whether U.S. firms in these sectors are relying too much on foreign suppliers, particularly those in China.” As I explain in a new Pandemics and Policy paper (coincidentally) out today, the federal government should not embrace economic nationalism to “fix” global supply chains that wobbled during the pandemic because–
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The nation’s overall productive capacity and its medical goods industries are generally healthy, and domestic industries and their supply chains adapted during the pandemic to meet extraordinary demand. This is particularly the case for pharmaceutical supply chains, which proved — according to the U.S. International Trade Commission’s thorough review in December — remarkably “resilient.”
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Past U.S. government attempts to re‐shore “essential” supply chains have proven costly and unsuccessful, while those implemented during the current pandemic have produced significant distortions (e.g., a ventilator glut), public embarrassment, and subsidies to politically-connected companies that are at best tangentially-related to COVID-19.
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Global integration and economic openness can bolster U.S. resiliency by increasing economic growth, mitigating the impact of domestic shocks, and maximizing flexibility. As we have seen during the pandemic with respect to trucks and semiconductors, moreover, re-nationalizing supply chains can actually amplify manufacturers’ pain when economic shocks (pandemics, natural disasters, etc.) are within U.S. borders.
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There are numerous market‐oriented policies that would generally benefit the U.S. economy while also supporting the industrial base and national resiliency, including: unilateral trade and investment liberalization; entering new economic agreements with U.S. allies, particularly those that specialize in medical goods; eliminating nationalist restrictions on government stockpiles and opposing any new ones; expanding high‐skilled immigration; and eliminating “never needed” regulations that were suspended during the pandemic to boost domestic production, investment, and adjustment.
Fortunately, Politico quotes a senior Biden administration official as saying that “[r]esilient supply chains are not the same thing as all products being made in America. That’s not our intention here.” Let’s certainly hope not, as the facts above argue strongly against using protectionism and subsidies to “renationalize” allegedly vulnerable global supply chains.
More broadly, the White House’s medical supply chain review should resist the temptation to proposes “fixes” to supply chain problems that — due to previous government interventions and the independent efforts of numerous American companies and foreign multinationals to expand domestic operations, enter the U.S. medical goods market, or adjust their supply chains in response to the pandemic — might no longer exist. Indeed, by the time U.S. policymakers decide to intervene further in the market, it will look much different than the one on which they based their decision and will likely change again by the time any government‐supported production comes online.
A common medical principle therefore applies to White House’s own medical supply chain review: “First, do no harm.”
(You can read the entire paper here.)
