CHINA IS WHAT?

            Let me say at the outset that I prefer calling the coronavirus currently disrupting our collective lives the “Wuhan virus.” While the CCP virus is catchy, my issue with using that description is the same as calling it the China virus; what about the next virus that comes out of China? Given the reports of the wildlife offerings at Chinese “wet” markets how long before some other exotic virus spreads across the world?  What do we name that one, the China virus deux? Or whatever means “two” in Mandarin? No, the Wuhan virus is short and sweet, can be further shortened to the Wu-flu and precisely describes the location where the virus originated.  

            It also drives the commentators on CNN, MSNBC, the New York Times, etc., batshit crazy (heh, heh), which is always enjoyable to see. 

            The Wuhan virus it is. 

            Now that the naming issue has been resolved, one thing I have learned about the global economy as it relates to this issue is that China dominates the manufacturing of pharmaceuticals in the world. That in the 1990s the United States, Europe and Japan were the leading producers of pharmaceuticals. That China has supplanted those countries/regions as the leading pharmaceutical manufacturers by means of good ol’ Chinese entrepreneurial spirit and time-tested business practices. Namely, dumping low priced products into the global market to drive out competitors. That according to a 2019 government report on the Chinese pharmaceutical industry, Chinese government subsidies, a robust chemical industry, intellectual property thefts, lax environmental regulations and China’s domestic regulations favoring production at home further contributed to China’s rise in the global pharmaceutical sector. 

            Do you know that the last drug facility in the United States to produce penicillin closed in 2004? 

            By way of background, the manufacturing of drugs has two aspects. One is making the actual pills, capsules, etc., we ingest. The other is producing the raw ingredients (called active pharmaceutical ingredients, or APIs) that are used to make the finished pharmaceutical product. China dominates in both those categories. 

            China is the world’s largest exporter of vitamins and antibiotic APIs. Medications made in China and sold in the United States are used to treat HIV, Alzheimer’s disease, bipolar disorder, schizophrenia, cancer, depression, epilepsy and high blood pressure. According to Rosemary Gibson, a frequently cited expert and author of the 2018 book “China Rx: Exposing the Risks of America’s Dependence on China for Medicine,” China is the largest global supplier of the APIs used to make many prescription drugs, over the counter medications and vitamins. 

            The 2019 annual report by the US – China Economic Security Review Commission on the United States reliance on Chinese pharmaceutical products states (in Section 3, Chapter 3) that China is the world’s largest producer of APIs and that the United States is heavily dependent on drugs that are either sourced from China or include APIs from China. 

            The 2019 report further notes that India is now the world’s largest producer of generic drugs, which fill most prescriptions in the United States, and gets 80% of its APIs from – you guessed it – China. 

            The United States’ dependence on drugs emanating from China is further complicated by the fact that China’s pharmaceutical industry is poorly regulated. There have been instances of Chinese produced drugs injuring and even killing American consumers. The 2019 report notes that while the Federal Drug Administration has inspectors in the country, the number of inspectors is low relative to the number of Chinese drug-producing facilities. Furthermore, the report states that Chinese drug manufacturers do not cooperate or cooperate poorly in any drug facility inspections performed by the FDA.

            The 2019 report further states that should China’s use of the United States’ dependence on China’s drug production as an economic weapon by restricting the flow of drugs into the United States, hiking the price of a given medication, etc., there would be significant negative repercussions for American consumers. By the way, those consumers include the United States military; the Defense Department buys significant amounts of drugs for its military hospitals to treat service members and their families. 

            It appears that the authors of the 2019 report were prescient. On March 13^th Townhall reported that “[t]he United States could be at the mercy of Communist China when it comes to receiving drugs and raw materials needed to fight the Wuhan Virus, according to the state media of Communist China….Xinhua, the state-run media agency, reported that the United States’ reliance on China for pharmaceutical exports gave the communist nation the ability to send the U.S. ‘into the mighty sea’ of the Wuhan virus. In the same article, China was lauded for its own handling of the novel virus.”

            Like many, I read several websites/newspapers through the course of the day in an effort to keep up with current events, but the fact of China’s dominance in the global pharmaceutical market is all new to me. Fortunately, it is not new to some of our elected representatives. Fox News reported on March 19^th that Senator Tom Cotton (R-Ark.) and Representative Mike Gallagher (R-Wis.) have introduced a bill that requires the FDA to track drug ingredients, ban the federal government from buying drugs originating in China, requiring drugs to carry labels with the name of the country of origin and provides financial/tax benefits to companies which manufacture drugs in the United States.

            Senators Robert Menendez (D-NJ) and Martha Blackburn (R-Tenn.) have recently introduced legislation seeking to increase the manufacturing of AGIs in the United States. Senator Marco Rubio (R-FL) has proposed that drug makers identify the source of their drugs’ ingredients, that federal buyers only purchase American-made drugs and that the government offers tax breaks to companies that produce pharmaceuticals in the United States.

            The White House is also getting in the game. The Daily Caller reported on March 11^th that the Trump administration is drafting an executive order that will eliminate the federal government’s reliance on foreign-made pharmaceuticals and medical supplies. White House Director of Trade and Manufacturing Policy Peter Navarro was quoted in the Daily Caller article as saying that 400 “essential” medications will be covered by the EO. Federal agencies will be required to “buy American” when purchasing pharmaceuticals and other medical supplies. 

            The efforts to reduce the United States’ dependence on Chinese drugs and medical equipment is laudable and certainly necessary. Of course, as discussed in a few articles on this subject, this may necessarily entail higher drug prices for American consumers. Some advocates point out that the government will have to somehow assist American drug makers to keep their prices competitive with foreign-made products. Perhaps a tariff on Chinese pharmaceuticals sold in the United States? Tax credits for companies that manufacture drugs and/or APIs in the United States? Preferential treatment for drug manufacturers not located in China?

            The economic complexities of reducing China’s dominance in this area deserve their own discussion. However, given the strained relations with China over the Wuhan virus, and the pre-existing dispute regarding China’s ongoing efforts to exert control over the South China Sea, a significant conflict between the United States and China is within the realm of possibility. It certainly behooves the Trump administration and Congress to move forward on this issue. Given that most people in America are outraged with China’s efforts to conceal the initial outbreak of the Wuhan virus, provide accurate reports of the number of infected, how many died, etc., and China’s current campaign of blaming the United States for the pandemic, there would be widespread support from the American public to break the Chinese supply chain of drugs to the rest of the world. 

Maybe this is an issue the Democrats and Republicans can agree upon and resolve on a bi-partisan basis. If only…. 

UPDATE: And so it begins…

Check this out. “China could weaponize drug exports to retaliate against US chip restrictions,” according to a prominent academic and Chinese government advisor.