Determining America’s “Dependence” on China for Essential Medical Goods (not much, actually)

By Scott Lincicome of Cato.

"The unfortunate onset of COVID-19 has caused many politicians and pundits to proclaim that the United States is distressingly dependent on China for essential medical goods, and to ask whether this “dependence” demands new government programs—in particular, protectionism, subsidies and “Buy American” procurement mandates—to fix the alleged problem. A little‐​noticed report from United States International Trade Commission (ITC) begins to provide the answer to that question, though probably not the answer those same politicians and pundits were expecting.

The June 2020 ITC report on “tariff and trade information for known products related to the response to COVID-19” substantially expands and updates an April report on the same issues. It now covers 203 medical products at the highest level of detail provided in U.S. customs data (the 10‐​digit level of the Harmonized Tariff System of the United States (“HTSUS”)) in six broad categories: (1) COVID-19 test kits/​testing instruments; (2) Disinfectants and sterilization products; (3) Medical imaging, diagnostic, oxygen therapy, pulse oximeters, and other equipment; (4) Medicines (pharmaceuticals); (5) Non‐​PPE medical consumables and hospital supplies; (6) Personal protective equipment (PPE); and (7) Other.
 
The ITC report is useful in several respects. For one thing, it documents the many tariffs that the United States now imposes on these essential imports, thus needlessly reducing supply and increasing prices at the worst possible time.


The ITC report also provides the top 5 foreign sources of these “COVID-19” goods in the United States, and in so doing eviscerates the all‐​too‐​common claim that the U.S. market is utterly dependent on China for essential medical goods. In fact, after crunching the numbers for 2019 (full dataset available here), we see that:

• For a majority (103 of 203) of the COVID-19 products in the ITC report, China was an insignificant supplier, representing between 0% and 10% of all imports of such goods in 2019.
• For only 32 the 203 items analyzed, did China supply more than half of all imports. (See Table below.) That number keeps dropping as China’s import share increases, with China truly dominating (having, say, more than an 80% import share) only nine import categories – mostly low‐​cost PPE like rubber gloves and hospital gowns. As the table shows, moreover, only six (bold italics) of these China‐​majority products are pharmaceuticals or pharmaceutical inputs – what our elected officials seem most worried about:
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• Speaking of pharmaceutical goods (found mainly in HTSUS Chapters 29 and 30), the ITC report further shows that China is simply one of many suppliers of these goods, and certainly not a dominant one for almost all of the products at issue. In fact, China was not even a top 5 import source for 34 of 63 pharmaceutical goods on the ITC’s list, and it was only the top foreign supplier for nine of those products (only a few of which could, as noted above, be considered to have a dominant China import share in 2019). At the same time, India—another frequent target of D.C. supply chain anxiety—was a majority foreign supplier of only one of these pharmaceutical products (with 72.7% of all imported “Anticonvulsants” under HTSUS 3004.49.0020 in 2019), and had greater than 25% import share for only five others.
• Overall, the ITC data for imports of pharmaceuticals and all other COVID-19 goods show a wide variety of foreign sources, mostly from allies like Canada, Mexico, Japan, Brazil and the EU — with relatively few items truly dominated by a single country. (Only 21 of 203 products overall had a supplier country with over 80% import share in 2019; only 91 of the products even had a supplier country with a bare majority.)

The ITC report thus reveals that, far from suffering some sort of major “dependence” crisis that demands an immediate, wide‐​ranging overhaul of the U.S. manufacturing sector and U.S. trade and procurement policies, the United States generally imports essential medical goods from a diverse (and ever‐​changing) group of foreign suppliers, and that—at most—there are only a handful of these products (from China or elsewhere) which are so dominated by a single country that they might require the federal government’s attention.

The key word here, of course, is “might” because even products with highly concentrated import shares don’t necessarily demand new government action. As I explained recently in National Review, import shares alone (which is all the ITC examined) can’t tell us how “dependent” the United States actually is on the foreign source country at issue:

[I]solated import‐​share figures tell us very little about actual “vulnerabilities,” because they omit domestic production and local inventories. According to a new study from the St. Louis Federal Reserve, China supplied almost 30 percent of all imported “essential medical equipment” (hand sanitizer, masks, personal protective equipment, ventilators, etc.) in 2018 but accounted for only 9 percent of total domestic consumption because American producers supplied the vast majority (more than 70 percent) of these products….
At the same time, we have massive stockpiles of other critical drugs to prepare for crisis‐​related spikes in demand.

Import share figures might also hide other global producers that have substantial capacity but simply didn’t sell to the United States during the period at issue (e.g., due to long‐​term contracts or geographic considerations), and they don’t tell us about the availability of similar or alternative products (e.g., a different type of antibiotic) in the marketplace or about key inputs or intermediaries in the manufacturing process. Furthermore, all of these figures will need to be updated to account for massive recent changes in the U.S. and global markets for these goods, as manufacturers around the world expanded capacity or adapted their operations to meet the COVID-19 challenge.


Finally, even a complete dataset of U.S. and global medical goods production and trade won’t answer more fundamental questions about trade, manufacturing, supply chain “resiliency,” national security, and the proper role of the federal government in addressing these issues – the topic of a new Cato Institute paper on which I’m now working.

Nevertheless, the ITC report is a good starting point for these discussions, as it shows the relatively few COVID-19 products for which more detailed information—on domestic and global production, supply chains, U.S. inventories and stockpiles, etc.—may be needed to advise on optimal U.S. “supply chain” policies going forward. Right now, those additional data are limited to non‐​existent, but they should be improved by a forthcoming report from the National Academies of Sciences, Engineering and Medicine that was commissioned by the CARES Act.


In the meantime, the ITC’s new report should quell policymakers’ immediate concerns that urgent and major government action is needed to fix America’s medical goods “dependency” problem. Judging from recent Trump administration actions and proposals from the Biden campaign and Congress, however, nobody seems to have read it."