WASHINGTON—As the COVID-19 pandemic swept across the globe in 2020, hospitals across the United States found themselves scrambling for masks, gloves, and other critical medical supplies.
The crisis served as a wake-up call for the United States, despite being a global leader in the pharmaceutical industry. Politicians and health care leaders vowed to fix the dangerous overreliance on foreign-made medical supplies, a problem that had gone largely unnoticed.
In March 2020, Einhorn witnessed what he called the “logistical nightmare” firsthand when shipments from China ground to a halt.
The U.S. generic drug supply chain still heavily relies on global production, with a significant portion of ingredients and raw materials sourced from China, according to Einhorn.
A separate probe into semiconductors was launched at the same time.
“The section 232 investigations have been a long time coming,” Einhorn said.
The Chinese regime’s iron grip on America’s supply of critical medicines has been years in the making, driven by Beijing’s strategic push to dominate key industries, systemic issues within the U.S. health care system, and a lack of decisive action in Washington to break this dependence, according to industry experts.
They argue that the pharmaceutical industry is different from the automotive sector, where the U.S. government knows it cannot afford to impose tariffs without a strategic plan—doing so would lead to severe supply shortages and price hikes.
National Security Threat
After years of offshoring production to China and other countries, the United States lost the ability to produce many life-saving drugs, creating a national security threat, according to experts.It’s a man-made problem, but a fix is possible, according to Rosemary Gibson, co-author of “China RX: Exposing the Risks of America’s Dependence on China for Medicine.”
“We can’t make antibiotics anymore in this country, from beginning to end. We can’t make penicillin. We can’t make those antibiotics needed to treat sepsis, which can kill you. We can’t make the antibiotics to treat pneumonia, sexually transmitted diseases.”
The new Section 232 investigation targets “both finished generic and non-generic drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients and key starting materials, and derivative products of those items,” according to the filing.
After the investigation, many national security hawks hope to see a well-designed strategic plan from the U.S. government to address this dependence on China.
“When a nation has an erosion of its industrial base—the ability to actually make things—it puts that country in a very vulnerable state,” Victor Suarez, retired U.S. Army colonel and visiting senior fellow at the Council on Strategic Risks, told The Epoch Times.
During World War II, while hundreds of thousands of American soldiers fought overseas, their efforts would’ve been impossible without the private sector, he noted. Factories that once made cars and appliances quickly shifted to producing war materials.
“It was really industry that saved our country,” Suarez said.
In her book, Gibson explained how Beijing used its playbook to dominate key industries, such as pharmaceuticals. She highlighted how these trade practices contributed to the loss of the last penicillin fermentation plant in the United States in the early 2000s.
After joining the World Trade Organization in 2001, China began flooding the market with cheap penicillin raw materials.
“They sold it at a very low price, with the intention of driving out U.S., European, and even Indian producers,” Gibson said. “At the end of the day, China became the dominant global supplier of penicillin material, and then they raised the price.”
China’s Secret Weapon: Ingredients
China is a dominant supplier of pharmaceutical ingredients globally. Gibson estimates that the United States relies on China for 95 percent of the key ingredients needed for generic drugs.
Even if the United States were to reduce its reliance on drugs sourced directly from China, it would still need to purchase pharmaceuticals from countries that rely on China for critical components, such as active pharmaceutical ingredients (APIs) and key starting materials (KSMs).
The pharmaceutical supply chain often involves a tiered production process where core ingredients, KSMs, are produced in China and then transferred to countries such as India for the production of APIs. China is also the dominant producer of APIs. Some good quality drugs and APIs are also produced in Ireland. Then the finished product is sold back into the United States.
“Without the KSMs, you can’t make APIs. Without APIs, you can’t make finished drugs. So China sits at the foundation of the global drug supply chain,” Einhorn said.
Trump believes that pharma tariffs will boost domestic manufacturing and reduce reliance on other countries.
What’s Next?
As part of the ongoing investigation, the government is collecting information from a variety of stakeholders, including industry leaders, trade organizations, academics, and other thought leaders.
He noted that sectoral tariffs on pharmaceuticals and semiconductors are “not available for negotiation” with other countries.
“They are just going to be part of making sure we reshore the core national security items that need to be made in this country,” Lutnick said.
Suarez believes that tariffs will not be enough for the country’s strategic plan.
“You would actually have some type of an incentive policy to actually bolster domestic manufacturers,” he said, noting that incentives could include tax breaks for companies that are scaling up, modernizing their facilities, or buying equipment.
“The problem is 90 to 92 percent of most of the prescriptions that Americans take are from the generic side. So that’s the side that I think the government has the biggest role to play, because that side doesn’t have the same investments from the venture capital and private equity that you see on the big branded side.”
Suarez also advocates for a strategic reserve for pharmaceuticals similar to the Strategic Petroleum Reserve that the United States has maintained since the 1970s.
He said KSM and API stockpiles in the United States could be maintained for many years, providing strategic flexibility and agility.
The oil reserve, the world’s largest emergency supply, was created in the aftermath of the 1973–1974 Arab oil embargo, which led to oil supply disruptions and a worldwide energy crisis.
“Any responsible organization, whether it’s a nation or a business, always has some kind of a contingency plan,” Suarez said. “Why wouldn’t we have one for the pharmaceutical industry?”
