Relocating China-Centric Supply Chains to USA Could Cure Virus Woes

'Economic distancing' could return health, confidence to shaken US public and economy, say experts
March 22, 2020 Updated: March 22, 2020
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As the United States suffers an increasing number of infections and fatalities from the CCP virus, a number of industries critical to the U.S. economy—including the powerhouse automotive and aerospace industries—have been forced to shut up shop. The double-whammy of supply-chain disruptions due to reduced Chinese and domestic industrial activity coupled with U.S. firms asking employees to stay at home to avoid spreading the coronavirus has ground American manufacturing to a standstill.

The Epoch Times refers to the novel coronavirus, which causes the disease COVID-19, as the CCP virus because the Chinese Communist Party’s coverup and mismanagement allowed the virus to spread throughout China and create a global pandemic.

However, numerous commentators have indicated that the time may have come for the United States to distance itself from China economically, industrially, and technologically to ensure American economic stability and resilience—and to cease supporting and financing China’s repressive communist regime.

Economic Decoupling From China

According to Marc A. Thiessen, Resident Fellow at the American Enterprise Institute (AEI), American dependency on China for essential supplies should end. Writing in The Washington Post, Thiessen said that “The current pandemic has exposed the fact that we are dependent on China for everything from iPhones and computers to clothing and footwear—supply chains that have been disrupted by the outbreak. It’s one thing to depend on China for cheap T-shirts and sneakers. It’s another to depend on a brutal communist dictatorship for life-saving drugs and the communications infrastructure that will undergird the 21st-century economy.”

Thiessen’s writes that his colleagues at the AEI—political economist and China expert Derek Scissors and Director of Asian Studies Dan Blumenthal—have stated that the “United States should change course and begin cutting some of its economic ties with China.”

Economic Virus

China’s communist regime locked down the city of Wuhan on Jan. 23, over six weeks after CCP officials had first reported an outbreak of the disease there. Other Chinese cities and entire industries were subsequently shuttered, instantly freezing global supply chains for all manner of manufactured goods and components at their source. As Chinese suppliers remained closed for business, the ripple effect meant that manufacturing companies across the United States soon lacked the components they needed to keep production going and, as their own measures to prevent the spread of the CCP virus kicked in, a wave of layoffs has ensued.

Things took a darker turn when Chinese regime mouthpiece Xinhua in early March threatened that if the Trump administration did not tread more carefully, China could elect to ban pharmaceutical exports to the U.S. China supplies over 90 percent of the antibiotics used in the United States, and some 95 percent of the Ibuprofen the United States needs for anti-inflammatory medication. America is also reliant on China for a range of other pharmaceuticals and medical supplies, including essential respirators and disposable items such as surgical masks and protective equipment.

Sen. Tom Cotton (R-Ark.) and Rep. Mike Gallagher (R-Wis.) introduced a bill this week — the Protecting our Pharmaceutical Supply Chain from China Act (pdf)—which aims to end U.S. dependence on China for pharmaceutical products.

“The Chinese Communist Party has threatened to cut off America’s access to vital drugs in the midst of a pandemic caused by its own failures,” said Cotton in a statement. “It’s time to pull America’s supply chains for life-saving medicine out of China and make the CCP pay for contributing to this global emergency.”

“The Chinese Communist Party’s outrageous threats to withhold lifesaving drugs from the U.S. endangers public health and should open our eyes to our dangerous over-reliance on China in our medical supply chain,” said Gallagher. “This is a national security imperative that, to many Americans, is a matter of life and death. It’s past time for us to develop an aggressive plan to move critical pharmaceutical supply chains away from China.”

Gallagher wrote on Twitter that “The CCP’s outrageous threats to withhold lifesaving drugs from the US is a national security imperative that to many Americans is a matter of life and death. Proud to join @SenTomCotton in developing an aggressive plan to move critical pharmaceutical supply chains away from China.”

Why Haven’t Manufacturers Left China Already?

For years, western manufacturers such as BMW feared being shut out of the lucrative Chinese market if they did not base a portion of their component manufacturing and assembly operations there. For cost-savvy manufacturers, China became the source of choice for components to feed assembly operations inside and outside China. According to Daniel Smith, product marketing leader at software specialists E2open, many companies have sought to expand their supplier base due to the Trump administration’s tariffs on a raft of Chinese-made goods.

In an articles for Sourcing Journal, Smith argues that there are significant costs associated with such moves, and that labor costs in new supplier nations can rise quickly too. Furthermore, says Smith, “Another key consideration for companies is that, even if they move production out of China, they’ll only avoid potential tariff costs if specific conditions apply.” If certain components or raw materials for a finished product originated in China, the manufacturer might still incur the full cost of the tariff—even if they had moved as much of their supply chain as possible to other low-cost nations or to the United States.

Chinese manufacturers maintain monopolies on not just pharmaceuticals, but a wide range of other products and raw materials, such as rare earth elements and other critical minerals, and everything from nuts and bolts to critical machine components. For example, the Financial Times reported last month that Jaguar Land Rover was struggling to ship enough key fobs from Chinese suppliers to their manufacturing plants in the UK.

Bringing it Back Home

At a March 12 Small Business and Entrepreneurship Senate Committee hearing entitled “The Coronavirus and America’s Small Business Supply Chain,” U.S. Senator Josh Hawley (R-Mo.) asked Tim Morrison, Senior Fellow at the Hudson Institute, about why the United States ceased manufacturing penicillin in 2004, despite some 62 million prescriptions being written for the drug in 2015 alone.

Morrison said: “I think the point of Made in China 2025 is essentially to destroy the free market and create incentives to offshore production in China. And originally this seemed like a good thing. We’ll save prices. We’ll move value, or value you can move, we’ll continue to do the innovation, but China is scooping that up as well. And so, without any decision by any government authority this happened and now we are going to deal with the consequences. And of course, an antibiotic isn’t instrumental to treat a virus, but the respiratory infection, it is.”

Hawley subsequently wrote on Twitter that any multinational corporations asking Congress for funding should explain how they will relocate their supply chain to the United States.

Speaking to the Hudson Institute in February, U.S. Senator Rick Scott (R-Fla.) said “it’s because of what communist China’s doing. I think there is going to be more decoupling. I think we’re seeing with the coronavirus or I think people are saying to themselves, ‘Are we too dependent in a country that acts an adversary?’ And I think … that’s going to cause some people to rethink their supply chains.”

Scott posed the question: “‘Do I want to support a regime that … has the human rights record that the communist party has in China?’ I think people are going to say, ‘I’m not going to do that.'”

“I want more jobs in this country. I don’t want people selling more fentanyl in this country. I don’t want China to try to militarize the rest of the world,” said Scott.

“People are going to have to choose.”