International Trade

Proposed Executive Order Could Lead to Lifesaving Medicine and Medical Equipment Shortages

The Administration is currently considering an Executive Order (EO) that would extend the Buy American Act (BAA) to medicines and medical supplies in an ill-timed attempt to increase domestic pharmaceutical manufacturing. The Order would apply to medical procurement by the Departments of Defense and of Health and Human Services, as well as to the Veterans Administration. If implemented, the Order would disrupt the intricate supply chains that are already straining under the pressure of the COVID-19 outbreak, create and exacerbate shortages of lifesaving medicines and medical equipment in the middle of the pandemic and lead to trade retaliation from our closest trading partners – however that would come later. Reconfiguration of the pharmaceutical value chain which prioritizes efficiency over production origins would be a difficult challenge during the best of times, however embarking on such a plan now would be a nearly impossible and misguided reaction to this worldwide health emergency. From a policy perspective, fostering a better environment for America’s pharmaceutical manufacturing capabilities deserves future study once we have emerged from the current crisis. The United States is greatest when we engage with our partners and fighting this virus will require a global all hands on deck.

“Buy American” sounds appealing until we examine its potential impact on delivering the treatments that save lives every day – especially in the midst of a health crisis. The Buy American Act of 1933 mandates that items purchased using funds appropriated by Congress be produced or manufactured in the United States. The Act designates a product as “American” when it is manufactured in the US and the cost of its domestic components exceeds 50%. For the most part, pharmaceuticals and medical equipment have been able to avoid Buy American provisions because of the Trade Agreements Act (TAA). The TAA provides a waiver threshold of $182,000, and most pharmaceutical and medical product contracts exceed that. Additionally, it expands sourcing from solely domestic manufacturers to “designated countries” which include America’s free trade agreement partners and signatories to the WTO Government Procurement Agreement. Notably, China is not a “designated country,” yet reports are that the EO is being issued to reduce America’s dependence on health products from China.

Intricate, international supply chains have developed to ensure that Americans have access to the pharmaceuticals that they need, however, 80% of the active ingredients used to manufacture the medicines on which Americans rely are sourced overseas. Extending the Buy American requirements to medicines and medical devices will disrupt these supply chains, leading to shortages at a time when procuring them is critical. This proposed Executive Order sends mixed messages because it is being rolled out at the same time that the Administration is correctly exempting medical equipment and supplies from previously enacted tariffs – policy that proactively increases access for Americans to medical items. This competing trade liberalization combined with protectionism seems contradictory and the protectionist impulses could have devastating public health consequences.

Increasing domestic pharmaceutical manufacturing is an idea that merits exploration after we have emerged from the grip of this viral outbreak. However, reconfiguring value chains is a long-term project that begins with the development of a plan and timeline for incentivizing the establishment of API factories within our borders. We are in the middle of a pandemic, and lives hang in the balance. It is incredibly important to protect medical supply chains that deliver lifesaving treatments to vulnerable Americans. Advancing protectionist policies is economically harmful during ordinary times but could prove much, more risky during extraordinary periods like now.

Global cooperation is the optimal way to mount an effective defense against COVID-19. However, the pending Executive Order to extend Buy American provisions to pharmaceuticals will alienate our allies when the imperative to work together is greatest and will delay the delivery of medicines to our countrymen when they need them most.

In Depth: International Trade

International trade creates and supports millions of American jobs that offer higher than average wages and drive economic growth. As a testament to the strength of American entrepreneurship, the vast majority of U.S. exporters are not large corporations but small to medium-sized enterprises. Those that doubt the power of global…

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