(What’s Left of) Our Economy: A Winning Trade War Message from the Last Pre-China Virus Manufacturing Figures

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aerospace, aircraft, Boeing, China, China virus, coronavirus, inflation-adjusted output, manufacturing, manufacturing production, metals, supply chains, tariffs, Trade, trade wars, {What's Left of) Our Economy

The new Federal Reserve industrial production figures are now out, and although they only bring the story up through February, they contain two vital messages: First, taking into account ongoing safety problems with aerospace giant Boeing (and its vast domestic supply chain), they’re very solid – and reinforce the case that the pre-China Virus manufacturing and overall U.S. economies were faring well despite widespread slowdown fears. Second, they also show that, despite the equally widespread tariff alarmism being mongered throughout the Trump years, domestic manufacturing wound up handling the so-called trade wars just fine.

According to the Fed, inflation-adjusted manufacturing output increased by 0.12 percent month-to-month and remained down on a year-on-year basis (by 0.18 percent). January’s monthly constant dollar production dip was revised down from 0.09 percent to 0.23 percent. Yet this real output is up on net by 1.33 percent since its last low point (last October) and by 0.36 percent since the first full month of significant Trump tariffs (April, 2018).

At the same time, these production levels remain 1.28 percent below those of manufacturing’s last peak – in December, 2018. So these are by no means salad days for domestic industry.

Take a look, however, at the main Boeing-related figures. Aircraft production and parts sank by 5.12 percent sequentially in February. It reached its lowest level since October, 2011 and this drop followed January’s 11.36 percent monthly nosedive.

Moreover, although impossible from the Fed figures to quantify precisely, the production halt of Boeing’s popular 737 Max model that began in January is clearly dragging down output in sectors ranging from metals to industrial machinery to plastics to electronics and instruments.

The rapid recent spread of the coronavirus throughout the United States will start generating very different and much worse manufacturing production and other data going forward. But these latest data show domestic industry’s performance even as tariffs on literally hundreds of billions of dollars worth of tariff on Chinese and metals inputs used by manufacturers remained firmly in place. And if that doesn’t signal loud and clear that both American producers and consumers were withstanding the Trump trade wars – a New Normal that’s likely to survive the passing of COVID 19 – quite nicely, and in fact that the entire economy had been winning it, what could?

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(What’s Left of) Our Economy: When Washington Slept on America’s Dangerous Dependency on Foreign Healthcare Products

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active pharmaceutical ingredients, Bureau of Industry and Security, China, China virus, Commerce Department, coronavirus, COVID 19, globalization, health security, healthcare, India, medical devices, national security, Office of Technology Evaluation, offshoring, pharmaceuticals, supply chains, surgical equipment, Trade, {What's Left of) Our Economy

Last week I wrote that no one in American politics, in either party, deserves blame for failing to anticipate the China Virus outbreak (in the sense of being ready for a genuine pandemic), and especially the Trump administration’s flawed response to its spread within the United States (as opposed to its timely decision on January 31 to start curbing inbound travel from overseas – initially from China). 

But there’s one big aspect of coronavirus-related public policy where potentially calamitous and avoidable mistakes have been made, and where identifying responsibility is essential (largely to prevent repetition). That’s the growth of America’s dependence on pharmaceuticals, their active ingredients, and other healthcare-related goods from foreign sources, especially from China.

It should have been obvious long before the virus broke out in Wuhan (at least as far as we know) that health security is national security, and that the blithe approval of trade and related policies that encouraged the offshoring of production in this crucial sector was as dangerous as the offshoring of crucial defense and defense-related (because so many inputs to weapons and platforms aren’t weapons themselves) products. Even louder alarm bells should have sounded once it became clear that a leading offshoring destination was China – a dictatorship that has challenged U.S. national security interests long before the rise of current leader Xi Jinping, and whose role in medical supply chains inevitably created the threat of supply cutoffs (as has recently been threatened in the Chinese government-controlled press).

And indeed American policymakers had all the evidence they needed as early as 2011. That’s when a small office at the Commerce Department called the Bureau of Industry and Security (BIS) issued a report called – yup – “Reliance on Foreign Sourcing in the Healthcare and Public Health (HPH) Sector: Pharmaceuticals, Medical Devices, and Surgical Equipment.”

For many years, BIS’ Office of Technology Evaluation (OTE) has been issuing reports on sectors of the U.S. defense industry and other portions of the economy critical to the nation’s security and their use of foreign parts, components, materials, and other inputs whose availability shouldn’t be taken for granted. And fortunately, the Office and the various acts of Congress that have defined its mission have long understood that, as suggested above, national security-related industries are by no means restricted to those that turn out products that go bang and boom.

Notably, the study was requested by the Obama administration’s Department of Homeland Security (DHS), which shows commendable foresight. And the main results make jaw-dropping reading today:

>“There is a significant amount of U.S.-based manufacturing for critical healthcare-related commodities.” At the same time, “There is…a very high degree of foreign sourcing and dependency for components, materials, and finished products.”

>“Exposure to supply disruptions is widespread, but many respondents consider it a cost of doing business in the healthcare industry.”

>As a result, “Only 34 percent of respondents are taking steps to reduce their exposure to foreign sourcing and dependency issues.”

>When it comes to the chemical ingredients for drugs, where heavy China dependency has attracted so much attention today, in 2011, pharmaceutical companies reported “difficulty limiting their exposure to foreign dependencies primarily because most of the APIs [active pharmaceutical ingredients] are produced outside the United States.”

>Medical device producers stated that they were “vulnerable primarily due to their reliance on other countries for electronic parts.” Japan was the main concern, due at least in part to the earthquake that year that disrupted many industries’ supply chains. But China has become an even more important supplier since then.

Sadly, however, the record also demonstrates that once the findings came in, no serious follow-through was undertaken.

OTE surveyed 161 companies – 70 pharmaceutical producers, 75 manufacturers of medical devices and surgical equipment, and 16 companies that turned out both kinds of products. Roughly three fourths of these companies were headquartered in the United States and roughly one-fourth were foreign owned.

All told, these firms produced 868 individual pharmaceuticals and 833 kinds of medical devices or surgical equipment. Of these, in turn, 290 pharmaceuticals and 128 types of devices and equipment were deemed by OTE “critical to effective healthcare services in the United States,” meaning “needed in various emergency scenarios.” The bureau also looked into the chemical ingredients and parts and components comprising these products.

As for the specific information sought, here it is:

“Survey respondents were asked to identify the pharmaceuticals and medical devices/surgical equipment they manufactured, integrated/assembled, and/or sold for use in the United States. For each product area selected, companies were then asked to provide the top three company proprietary products they make and the location of manufacture. Finally, companies identified, to the best of their knowledge, whether they were the sole U.S.-based manufacturer, sole global manufacturer, or not the sole manufacturer of each product.”

Some of the above results in greater detail:

More than 73 percent of the total surveyed companies depended on suppliers located abroad for at least one critical component, manufacturing material, or actual finished good. And the average number of such foreign-sourced goods per company surveyed was 11.4. Seventy-nine percent of pharmaceutical firms surveyed reported themselves in this situation versus 63.7 percent of the device and equipment manufacturers, and the average number of foreign-sourced products was 11.4 for the drug companies versus 9.8 for their device and equipment manufacturers.

Interestingly, even at this point, China loomed pretty large large in the picture at that time – especially for medical devices and surgical equipment. Its entities represented 13.8 percent of the total number of foreign suppliers to U.S.-based producers. For pharmaceutical companies, they accounted for 9.1 percent – less than leader Italy (15.7 percent), India (12.8 percent), and Germany (10.6 percent). Not that this result should be especially comforting, as India – a major global producer of generic drugs – has recently announced to restrict exports because it’s experiencing difficulty getting chemicals from China and (surprise?) wants to make sure it can provide for its own population.

The OTE survey, in other words, found that, in 2011, healthcare products companies operating in the United States relied on a diverse global supply chain. But significant vulnerabilities were reported, too. Principally, for pharmaceuticals, “there was no U.S.-based source for at least 65.5 percent of [total goods] identified by survey respondents.” And for medical devices and surgical equipment, the figure was at least 60.5 percent. More troublingly, in the device and equipment sectors, the greatest dependencies tended to be in complex products.

Moreover, when thinking about the safety of imported healthcare goods, keep in mind BIS’ finding that only 60.3 percent of the companies in total could identify the suppliers of their suppliers.

Nor were significant supply disruptions unknown by healthcare products companies. Thirty percent of these businesses reported experiencing at least one of these events between 2007 and 2010, 40 percent of these came from foreign suppliers, and 17.5 percent came from China – the biggest share for any single country. Both domestic- and foreign-origin disruptions lasted an average of 155 days. Nonetheless, these figures are surely way too low, as only 18.3 percent of responding companies said they tracked foreign supply disruptions.

Even so, the study oddly found that “Only 16.6 percent of companies foresee a risk of supply disruptions from outside of the United States” but that 29 percent “believed their company was vulnerable to serious and/or prolonged supply chain disruptions from events or dependencies outside the United States.” For pharmaceuticals, the top concern again was lack of API availability domestically.”

OTE made several policy recommendations to strengthen America’s health security. For example, various major relevant federal agencies should “further examine [the] survey data to prioritize the foreign sourcing and dependencies that could have the greatest impact on the healthcare supply chain in an emergency situation.”

In addition, these agencies, “in coordination with DHS and the Department of Commerce, should assess whether the use of Defense Production Act authorities, such as the Defense Priorities and Allocations System (DPAS), could provide the ability to rapidly expand or surge capacity of U.S.-based pharmaceutical and medical device/surgical equipment facilities to meet demand in an emergency situation.” As made clear, however, by the continued sky-high levels of the healthcare industry’s China and other foreign dependencies, the problem was promptly ignored.  

Such measures, along with many others in the trade, tax, and regulatory fields will no doubt be crucial to rebuilding the kind of domestic healthcare industry so many Americans and even their leaders finally recognize is essential. But if the nation really is seriously behind the idea that health security is national security, it’s going to need updated detailed information on foreign dependencies. In other words, time to put the OTE to work again.

(What’s Left of) Our Economy: How Big a China Virus Hit?

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China virus, coronavirus, COVID 19, Economic Policy Institute, Employment, employment multiplier, Jobs, output, output multiplier, production, {What's Left of) Our Economy

The short answer to the headline’s question? “Really big.” Which is kind of obvious. So today I thought I’d present some information on techniques economists use to come up with a somewhat more specific idea.

First let’s look at jobs – because jobs obviously affect people and their ability to provide for themselves. Economists taking a “put people first” approach would start by looking at the official federal government data on how many Americans are employed by those parts of the economy that clearly will be most seriously affected. Those numbers look like this as of last month’s preliminary figures, in millions of employees:

retail trade:                                                            15.659           1.22

educational services:                                               3.838           1.94

  (includes public & private institutions)

leisure & hospitality:                                            16.873

arts, entertainment, & recreation:                           2.494          3.79

  performing arts & spectator sports:                     0.516

  spectator sports*:                                                 0.146

accommodation & food services:                        14.379          1.61

  accommodation:                                                  2.092

  restaurants & other eating places:                     11.103

*January figure

The indented categories are industries of special interest that are sub-sectors of the larger categories below which they appear. And if you add up the major categories, you come up with 54.193 million workers – nearly 42 percent of the total U.S. private sector workforce.

Sharp-eyed readers will notice a number to the right of the worker figures – that number shows what’s called the employment multiplier for the sector in question. Simply put, it means how many jobs in other parts of the economy the maintenance, creation, or loss of a single job in the first sector affects. In other words, every job in American retail companies and stores affects 1.22 jobs elsewhere (e.g., from suppliers that furnish that industry with the inputs it needs to function, and from the purchases its own workers make from other industries).

Employment multipliers aren’t easy to find – these come from a Washington, D.C. think tank called the Economic Policy Institute, and don’t cover all the initially affected sectors. But from these data alone, it’s obvious that the total number of U.S. jobs that could be lost, or see a cutback in hours, is much greater than the employment damage done, for example, by the simple closing of a single restaurant or sports stadium.

Most economists would also look at how much output the most seriously affected industries contribute to the gross domestic product (GDP – the total sum of all the goods and services Americans turn out during a given time period). GDP and output matter, of course, because if businesses aren’t producing goods and services, they won’t need employees. Here how they look, according to a measure called “value-added” – which seeks to eliminate various forms of double-counting that result when trying to gauge production in sectors that make final products, and sectors that make their parts, components, materials, ingredients, and other inputs. Also important – these figures are not adjusted for inflation.

Percent of total U.S. value-added

retail trade:                                                            5.50           0.66

healthcare services & social assistance:               7.60

educational services:                                            1.20           0.72

performance arts, spectator sports, museums &

  related activities:                                               0.70            0.81

accommodation & food services:                       3.10

  accommodation:                                               0.80

  food services:                                                   2.30

Again, the sub-categories are indented. Here the total percent figure is much smaller than the employment figure. But at 21.20 percent, it’s not bupkis, either.

And as with employment, don’t forget those multipliers (also presented to the right)! Here, the readily available data is scantier, and those I use are from 2012. But clearly the indirect output (and growth) impact will be non-trivial. (These output multipliers come from the Manufacturing Institute of the National Association of Manufacturers.)

Even if the China Virus situation wasn’t still evolving – and possibly dramatically, no one should take these numbers to the bank. Especially important is remembering that none of them take into account the danger that all these jobs and output and income and related business revenue losses bring about the kind of financial system seize-up seen during the financial crisis of 2007-2008. Moreover, although business and entire industry shutdowns will be extensive in the above and other sectors, they won’t be total, or (usually) anywhere close. And the damage will not last forever, or anywhere close.

All the same, we’re talking major drops in employment, incomes, and production – which is exactly why the economic response from Washington needs to focus on getting and guaranteeing money and credit where it’s needed pronto.

Im-Politic: In Case You Still Doubt It’s a China Virus

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China, China virus, coronavirus, COVID 19, decoupling, elites, globlalism, Hong Kong, Im-Politic, Iran, Italy, pandemics, Taiwan, The Epoch Times, Trump

Yesterday’s RealityChek post explained why Americans looking for current domestic scapegoats for the sluggish China Virus outbreak response are barking up the wrong tree. But despite the predictable criticisms from globalism- and political correctness-happy elites and the Mainstream Media journalists who follow their cues, the search for foreign scapegoats is absolutely legitimate – primarily because one country above all has unmistakably earned the title: China.

Skeptical? Then check out this editorial from The Epoch Times. As it compellingly demonstrates, “Where Ties With Communist China Are Close, the Coronavirus Follows.”

More specifically, although the editorial writers note that numerous drivers lie behind COVID19’s spread, “the heaviest-hit regions outside China all share a common thread: close or lucrative relations with the communist regime in Beijing.”

One reason I found the editorial especially important was its explanation for the virus’ concentration in Italy. Some convincing explanations for high levels of Italian mortality rates have come out, but I’ve yet to run across any material on why China Virus became so common in Italy to begin with. The Epoch Times spotlights some major reasons:

“Italy, the most heavily affected country outside China as of March 10, was the first (and only) G-7 [“Group of 7” – an official organization of the world’s seven biggest economies] nation to sign onto the PRC’s Belt and Road Initiative (BRI, also known as One Belt, One Road). In an attempt to prop up its weakening economy, Italy has also sought to capture the Chinese market for selling its luxury goods….

“Italy also has signed scores of sister-city agreements with China, with the cities of Milan, Venice, and Bergamo included among them. These are the areas hardest-hit by the virus.”

China ties also seem largely responsible for the coronavirus’ outsize impact on Iran:

“The Iranian regime has had a comprehensive strategic partnership with China since 2016, and its ties with Beijing began years before that. In violation of international sanctions, Iran has imported embargoed materials from China, while continuing to sell oil to the PRC. The Islamic Republic allowed flights in and out of four major Chinese cities until the end of February.”

And reinforcing the case for a vital Iran-China connection is this Wall Street Journal piece. It reports that the Iranian city of Qom, which Iran’s government calls the country’s COVID19 starting point, has been the site of numerous infrastructure projects built by Chinese engineers and technicians as part of that Belt and Road program.

As the Times notes, even South Korea’s government – whose comprehensive and seemingly testing program has garnered widespread global praise – seems to have set itself up for China Virus troubles “for refusing to ban Chinese tourists at large and instead only barring entry for those who recently traveled to Hubei Province, the epicenter of the epidemic in China.”

Don’t forget, moreover, that one big reason surely has concerned South Korea’s long surging economic relations with China – which assembles lots of high-value manufactured goods containing numerous South Korean parts and components. The same goes for Japan, another coronavirus hotspot.

The Epoch Times‘ conclusion is also borne out by the experiences of two other places with extensive economic relations with China that seem to have the disease contained: Hong Kong and Taiwan. (And I don’t mean to suggest that the latter isn’t a “country.”)

The city, located right next to another China Virus epicenter, Guangdong Province, has basically shut its border with the People’s Republic. Taiwan “began to board planes and assess passengers on Dec. 31, 2019, after Wuhan authorities first confirmed the outbreak. In early February, Taiwan banned entry to foreign nationals who have traveled to the PRC.”

Of course, now that the virus has spread far beyond China, government authorities need to focus on more domestically focused strategies – although plugging remaining foreign travel gaps, as President Trump approved in his otherwise unsuccessful Wednesday night Oval Office address, can certainly be justified in many circumstances.

Moreover, China’s primo role in not only the coronavirus outbreak but the previous Bird Flu and ongoing Asian Swine Flu episodes indicates that there’s something about China that makes it particularly (if not uniquely) plague-prone. As a result, further curbs on commerce with the PRC seem imperative even leaving aside (as no one should) Beijing’s recent threat to cut off shipments of vital medicines and their chemical ingredients to the United States. In other words, keeping the focus on China’s responsibility will help American leaders keep and intensify their focus on desirable, broader economic decoupling.

And China’s disgraceful effort to place blame for the virus on the United States amounts to a major additional reason to spotlight the above transnational coronavirus links.

“Blame games” in politics and policy are often condemned, and surely they’re often wrongheaded or overdone. But they also serve the valuable purpose of clarifying thought, accurately identifying problems, and – as suggested above – speeding the discovery of effective solutions. That’s why The Epoch Times editorial gives me more reason than ever to keep calling the coronavirus the China Virus – and why the same should go for all Americans.    

Im-Politic: No U.S. Politicians Own China Virus Bragging Rights (& That’s Not a Scandal)

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Biden, budgets, CDC, Centers for Disease Control and Prevention, China, China virus, coronavirus, Democrats, election 2020, health security, Im-Politic, Joe Biden, public health, Trump

Since the coronavirus’ serious threat to Americans’ health and their economy became clear, a blizzard of charges has accused President Trump of being caught flat-footed by the pandemic. I agree that the President didn’t expect a dangerous plague to break out overseas and swiftly cross America’s borders. I’ve also written that Mr. Trump made a big mistake in cutting funding for the Centers for Disease Control and Prevention (CDC) – but mainly for political reasons. For the amounts of money involved are so small that they couldn’t possibly even move the needle in terms of reining in federal spending and cutting deficits.

In fact, given the tiny sums, the picture looks pretty good when it comes to the latest Trump budget request for the CDC programs that actually deal with coronavirus-type threats. Check out the line items for “Emerging Infectious Diseases” and “Global Disease Detection and Other Programs.” The former is down only marginally from actual spending levels previously agreed to by Congress (including of course its Democrats) and the latter is up significantly.

But more important, the allegations seem to assume that the American political system has been chock full of leaders who can boast the foresight the President lacked, and that the nation’s response would have been much more effective had one of them occupied the Oval Office. Is there any actual evidence for this proposition?

One crucial test is whether well before the virus became front-page news any of the leading recent and current Democratic candidates for President rolled out plans for beefing up American capabilities to respond to pandemics before the virus’ breakout in China. And do you know how many did? None – with the possible exception of former New York City Mayor and media magnate Michael Bloomberg.

That’s based on checking the polcy sections of the websites of former Vice President Joe Biden, Vermont Senator Bernie Sanders, and drop-out Massachusetts Senator Elizabeth Warren. Drop-outs Minnesota Senator Amy Klobuchar and South Bend, Indiana Mayor Pete Buttigieg have taken all the content down from their sites.  But a wide-ranging media survey of their positions reveals no attention paid to pandemics, either.

I describe drop-out Bloomberg as a possible exception because his site did Mr. Trump’s “erratic leadership, go-it-alone approach, and distrust of science” for putting the country “in a vulnerable position should a major public health emergency, such as the novel coronavirus…materialize.” And he outlined what can fairly be called a plan.

Yet it’s not clear when these Bloomberg proposals were unveiled, and there’s no evidence that he was thinking about such matters before COVID 19’s appearance.

The same goes for Warren and Klobuchar, whose plans only dated from late January. Biden published an op-ed detailing his own ideas at about the same time. (See this post for links.)

I don’t believe that any of these politicians (including those with long years of public service) deserve any blame for failing to anticipate the virus threat on a timely basis – and for the same fundamental reason I don’t believe Mr. Trump should be pilloried. Because this kind of pandemic (coming from a country with extensive ties with the U.S. and global economies, like China, as opposed to regions like Central and West Africa, with almost no such ties) really couldn’t be anticipated adequately.

And incidentally, this point is also relevant to the charge made by Biden and others that the President not only cut the budget for the CDC, but for the country’s foreign aid agency, and also dismantled the White House global health security team created during the Obama years.

But anyone honestly believing that a little office somewhere in the Executive Office of the President would have made a meaningful difference in preventing or fighting the virus is guilty of drinking the policy wonk kool-aid claiming that augmenting bureaucratic flow-charts in any way amounts to solving problems – even those that emerge suddenly. As for the foreign aid cuts, the U.S. Agency for International Development (USAID) has been working on helping prevent the spread of infectious diseases like the coronavirus, but Beijing made clear early on that American government help wasn’t wanted. (Nor was World Health Organization help.)

In other words, life is full of unpleasant surprises and shocks, and from time to time they’re big. Human beings don’t come with perfectly functioning crystal balls in their heads, and learning curves are rarely as steep as we’d like because lessons from experience and history tend to be excruciatingly difficult to draw. Hindsight can be superb, but says nothing about clairvoyance. Governments, moreover, although indispensable in such situations, are often not the most efficient actors, and in crises, they’re often forced to scramble.

That’s not to say that the President may not pay a political price for his coronavirus record, or that Americans don’t have a right to be frustrated with his actions to date, much less that he deserves reelection on any grounds. Indeed,  here’s a great suggestion for the kind of speech Mr. Trump should have made by now, and still should make – which urges him to use the virus crisis as an opportunity both to stimulate the economy and prepare better for future pandemics with major spending and other measures to bolster national health security.

But it is is to warn that none of President Trump’s critics or challengers can legitimately claim to have done better, let alone that they’ll act more effectively when the next black swan – biological or not -flies into our lives.

Im-Politic: The China/Biden Opportunity Sanders Needs to Seize

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Bernie Sanders, China, China virus, coronavirus, Democrats, drugs, election 2020, health security, Im-Politic, Jobs, Joe Biden, manufacturing, Michigan primary, pharmaceuticals, technology, Trade, World Trade Organization, WTO

Since he emerged as a major rival to Hillary Clinton for the 2016 Democratic presidential nomination, Vermont Senator Bernie Sanders has been criticized for lacking a killer instinct. Specifically, he’s generally declined to attack his competitors as harshly as many supporters and supposed political pros would like. (The articles here and here nicely frame the history.)  

I don’t feel qualified to weigh in on this debate, but with a crucial primary coming up in Michigan tomorrow, it’s clear to me that the progressive standard-bearer could use more of a killer instinct on a big policy issue: former Vice President Joe Biden’s record on China issues.

Sanders has decided to assail Biden on his overall trade record, which makes sense considering the latter’s support for the kind of trade deals and policy decisions (like NAFTA, the North American Free Trade Agreement, and the rush to expand commerce of all kinds with China) that have hammered workers in manufacturing-heavy states like Michigan. 

But his focus is far too narrow, especially considering developments over the last few years and particularly the last few months. For the Democratic Socialist is solely emphasizing the job and wages loss resulting from agreements like the Biden-endorsed deal that supported China’s entry into the World Trade Organization (WTO) in 2001 – which granted Beijing vital legal protection against unilateral American efforts to fight its protectionism and other forms of economic predation. That mattered greatly because many of these Chinese transgressions persisted post-WTO and by all accounts have worsened under the regime of Xi Jinping.

It’s now clear, however, that the China threat is even worse because it’s far broader; that Biden as long-time Senator from Delaware in particular flunked those non-economic policy tests, too; and that the biggest arguably was the WTO vote. So despite signs from polls that Americans generally (though not necessarily in manufacturing centers) aren’t as opposed to pre-Trump trade policies as in the past, the same surveys make clear that all manner of China-related concerns are mounting, and that therefore hitting Biden for supporting measures that have clearly increased Beijing’s wealth, power, and consequent capacities to threaten key U.S. interests in many fields would succeed roaringly.

Indeed, Biden’s stated justification in 2000 for favoring the crucial WTO decision looks especially and dangerously loopy nearly two decades later, when a Chinese cover-up helped the coronavirus become a serious threat to the United States and the rest of the world at large, when American leaders have finally become aware of how the industrial offshoring accelerated by the WTO move has made the nation shockingly dependent on healthcare products from China, and when the PRC’s official press has just published an article all but threatening to plunge the United States into coronavirus hell by blocking the export of the drugs and their chemical ingredients needed to fight the pandemic.

For in 2000, Biden made clear that he mainly supported China’s entry into the trade body – and ending the policy of granting Beijing tariff breaks only on an annual basis and only if its repressive human rights practices improved – in the belief that this new approach would both promote political and economic freedom in China and help “encourage” its “development as a productive, responsible member of the world community.”

Moreover, Biden not only guzzled the kool-aid of claims that WTO entry would foster greater political as well as economic freedoms in China. He argued that such change was exactly what most of China’s leaders intended. These dictators, he argued,

“have consciously undertaken–for their own reasons, not ours–a fundamental transformation of the communist system that so long condemned their great people to isolation, poverty, and misery. They have been forced to acknowledge the failure of communism, and have conceded the irrefutable superiority of an open market economy.”

Biden was right in noting that economic reforms already by then undertaken had greatly improved living standards for enormous numbers of Chinese. But he was completely wrong in believing that “this growing prosperity” would start bringing more democratic reform and a move toward genuinely open markets. Nor did he foresee that because China’s economic progress depended on amassing ever greater trade surpluses in ever more sophisticated products – and especially with the United States, the world’s biggest, most lucrative market – much of the rise in Chinese living standards would come at the expense of American domestic manufacturing and its workforce.

In fact, Biden explicitly scoffed at fears that WTO entry would bring about “the collapse of the American manufacturing economy, as China, a nation with the impact on the world economy about the size of the Netherlands, suddenly becomes our major economic competitor.”

But in light of China’s growing international belligerence particularly under Xi Jinping, it’s disturbing that the then-Senator – supposedly a foreign policy expert – was equally blind to the likelihood that a WTO-fostered “emergence of a prosperous, independent, China on the world stage” would enable China to flout “international norms in the areas of trade, security, and human rights” whenever it chose, rather than strengthen China’s loyalty to that “liberal global order.” 

Sanders and other critics of the WTO decision rightly derided all of these declared convictions. But I’ve yet to hear him spotlight the dangers to America’s global technology leadership and therefore national security (including health security) generated and continually worsened by the richer, stronger China made possible by the policies supported by Biden and the rest of the bipartisan globalist establishment that ran Washington, D.C. – and U.S. China policy – before Donald Trump’s election as President. P.S. A China that achieved its strategic goals could decimate American living standards still further.

This presidential campaign has already featured so many ups and downs, and so many front-runners who have risen and fallen, that Michigan probably won’t be  Sanders’ last chance to mount a broad-brush attack on Biden’s atrocious China record. (Just FYI, as of this afternoon, the polls show Sanders getting thumped.) The continuing coronavirus fallout could create further opportunities for him as well.

What is clear, however, and to large, growing numbers of Americans, is that enabling the rise of China ranks as one of the most potentially calamitous mistakes in American history.  And the sooner Sanders starts exploiting Biden’s role in enabling it (which continued during the do-nothing Obama administration), the better.     

(What’s Left of) Our Economy: What Washington Doesn’t Know About U.S. China Drug Dependence Can Literally Kill Us

Tags

active pharmaceutical ingredients, antibiotics, chemicals, China, China virus, coronavirus, COVID 19, FDA, Food and Drug Administration, generic drugs, globalization, Hastings Center, Katherine Eban, medicines, pharmaceuticals, public health, Rosemary Gibson, supply chain, U.S-China Economic and Security Review Commission, {What's Left of) Our Economy

It’s bad enough, as widely reported, that as the coronavirus has begun spreading rapidly beyond China, the United States finds itself reliant on the People’s Republic for a wide variety of medicines and, just as important, for the chemical building blocks of those medicines. It’s at least as bad, and much less widely reported, that the U.S. government still doesn’t know the exact extent of this dependence, and still uses an inspection system for checking the safety of these Chinese inputs that looks as leaky as the proverbial sieve.

Even worse, as I see it, these shortcomings have been way out in the open since at least last July, when the official U.S.-China Economic and Security Review Commission held a hearing on the matter.

Anyone with any doubts about how dangerous this dependency on China has become should check out the testimony of Rosemary Gibson of The Hastings Center, one of the world’s leading research institutes focusing on healthcare and healthcare and broader scientific ethics issues. Gibson has been investigating this situation for years, months before the corona virus outbreak, made the following claims at the Commission session to justify her conclusion that “The nation’s health security is in jeopardy”:

>”The U.S. can no longer make penicillin. The last U.S. penicillin fermentation plant closed in 2004. Industry data reveal that Chinese companies formed a cartel, colluded to sell product on the global market at below market price, and drove all U.S. European, and Indian producers out of business. Once they gained dominant global market share, prices increased.”

>”The U.S. can no longer make generic antibiotics. Because the U.S. has allowed the industrial base to wither, the U.S. cannot produce generic antibiotics for children’s ear infections, strep throat, pneumonia, urinary tract infections, sexually-transmitted diseases, Lyme disease, superbugs and other infections that are threats to human life. We cannot make the generic antibiotics for anthrax exposure. After the anthrax attacks on Capitol Hill and elsewhere in 2001, the U.S. government turned to a European company to buy 20 million doses of the recommended treatment for anthrax exposure, doxycycline. That company had to buy the chemical starting material from China. What if China were the anthrax attacker?”

>”Beyond antibiotics, the U.S. industrial base for generic drug manufacturing is on the brink of collapse. Generic drugs are 90 percent of the medicines Americans take. Examples of generic drugs made in China by domestic companies and sold in the United States include: antibiotics, anti-depressants, birth control pills, chemotherapy for cancer treatment for children and adults, medicine for Alzheimer’s, HIV/AIDS, diabetes, Parkinson’s, and epilepsy, to name a few. If past performance is indicative of future performance, China’s generic drug companies will engage in cartel formation and predatory pricing, and drive out U.S. and other western generic companies.”

>[T]he pharmaceutical and chemical industry’s successful requests to the U.S. Trade Representative not to impose tariffs on medicinal products made in China corroborate that much of the US industrial base, and our self-sufficiency in manufacturing products essential for life, has collapsed.”

And Gibson categorically stated that “The FDA [U.S. Food and Drug Administration] cannot fix the underlying cause of the proliferation of contaminated and potentially lethal medicines in the legal supply of America’s medicines.”

One reason for the FDA’s ineffectiveness is clearly a lack of good data. Not that the challenge of conducting adequate inspections is easy. Jennifer Bouey of the RAND Corporation, another leading think tank, told that Commission that on top of China’s foreign affiliated plants, “Researchers estimate there are 5,300 to 7,000 local manufacturers, each with a small share of the Chinese domestic market.”

Mark Abdoo of the FDA itself acknowledged to the Commission that because of “remaining gaps” in its data, the agency lacks “visibility of all Chinese manufacturers that produce drugs or active pharmaceutical ingredients of drugs that are ultimately shipped to the United States.”

Abdoo added that on top of drug building blocks (called “active pharmaceutical ingredients,” or APIs) that the FDA knows come into the U.S. market from China, such China-produced ingredients “also come to the U.S. as part of finished drug products manufactured in other countries, for example, India. Therefore, the percentage of APIs produced by China for the United States marketplace is likely underrepresented by our numbers as China is a major supplier of APIs for other countries.”

It’s worth mentioning at this point that relying on the main federal government system for slicing and dicing the U.S. economy – the North American Industry Classification System (NAICS) – can produce a highly misleading picture of American imports of drugs and their chemical ingredients from China.

For example, according to the NAICS data, although American purchases of finished drugs and their ingredients are up astronomically in absolute terms over the last 20 years, they still account for only 1.34 percent of such imports from the world as a whole. Similar trends have unfolded in “non-diagnostic biological products,” which are defined as “vaccines, toxoids, blood fractions, and culture media of plant or animal origin.” Despite soaring literally 80-fold from 1999 to 2019, imports of these goods equal only 0.34 percent of all U.S. imports.

But separate testimony to the Commission by journalist Katherine Eban, drawing on her recent probe of the foreign factories that supply so much of the U.S. drug market, identified numerous flaws in inspection procedures and broader policies that are much more easily corrected – and indeed, should have never been allowed to emerge in the first place. For example:

>”Most of the FDA’s investigators who are sent to China do not speak the language. They can’t read the manufacturing records. The FDA does not always provide independent translators. Instead, the companies provide translators who, more often than not, are company salesmen. Sometimes, FDA investigators simply give plants a pass, deeming them to be No Action Indicated because they have no way to tell otherwise. The investigators also can’t read street signs, which make them vulnerable to wild manipulations. Companies steer them to phony ‘show’ plants, where everything looks compliant, but the companies aren’t manufacturing there. Sometimes a group of companies pool their resources and invest in the same “show” factory, so that different FDA inspectors return to the same plant at different times, each one thinking they are inspecting a different facility.”

>”In the United States, in order to inspect drug plants, FDA investigators simply show up unannounced and stay as long as is needed. But for overseas inspections—due to the complex logistics of getting visas and ensuring access to the plant – the FDA has chosen to announce its inspections in advance. Overseas drug plants typically ‘invite’ the FDA to inspect and the agency accepts. Plant officials serve as hosts to the visiting FDA investigators, who become their guests. It is not unusual for manufacturing plants to arrange local travel for FDA investigators. This system has allowed manufacturing plants to ‘stage’ inspections, as one FDA investigator put it, and conceal evidence of data fabrication.”

>”According to the FDA’s own data, which I obtained, from 2013 to 2018, out of 864 inspections in China that FDA investigators recommended as Official Action Indicated, FDA officials downgraded 78 of those [that is recommended a milder response from Washington]. By contrast, in the same time period, out of 11,642 inspections that FDA investigators conducted in the U.S. and recommended as Official Action Indicated, only one inspection was downgraded in that time. This reflects the FDA’s willingness to give foreign plants, particularly in China, an opportunity to reform without sanctions.”

>The agency appears to discourage talented staff to deploy in China and elsewhere abroad because of “a lack of clear career progression and promotion opportunities. Right now, those who serve overseas often return to the FDA’s U.S. headquarters without a guaranteed job, and sometimes have to accept demotions.”

Alert readers will note that although most of the problems mentioned here are rooted in pre-Trump policies and practices, they’ve continued into the Trump era. All Americans should demand that the coronavirus outbreak be regarded by Washington as the most urgent possible wake-up call.

Incidentally, Rosemary Gibson’s latest findings are contained in her recent book, China Rx.  Katherine Eban’s are available in her recent book, Bottle of Lies. 

Im-Politic: How Trump is Letting the China Virus Crisis Go to Waste

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CDC, Centers for Disease Control and Prevention, China, China trade deal, China virus, coronavirus, Im-Politic, National Institutes of Health, pandemics, pharmaceuticals, Phase One, Trump, Wuhan, Wuhan virus, Xi JInPing

As tragic as the coronavirus has been for victims in China and elsewhere and their loved ones, both the humanitarian and the Machiavellian in me can’t help but think that President Trump is squandering some great and closely related opportunities being created by the outbreak.

To be sure, the President hasn’t completely ignored the disease. He tweeted yesterday that “China has been working very hard to contain the Coronavirus. The United States greatly appreciates their efforts and transparency. It will all work out well. In particular, on behalf of the American People, I want to thank President Xi!.”

He stated at a January 22 press conference at the big global economy conference in Davos, Switzerland that the U.S. government has a plan to contain the virus in the United States. The federal Centers for Disease Control and Prevention (CDC) and National Institutes of Health say they’re working on a cure – in tandem with the U.S. pharmaceutical industry.

But given that the United States is the world leader in medical research, and given that the President has just (justifiably) eaten China’s lunch with the new Phase One trade deal, it seems like much more could and should be done, and in a much higher profile way.

For example, the President, who isn’t shy about broadcasting his achievements and intentions, should announce that’s he’s directing federal research agencies to treat the coronavirus threat as a top priority, as well as seek a similar commitment from U.S. medical schools and drug companies. And how about a summit of American medical research leaders from the public and private sectors to brainstorm both on addressing the present danger and the overall growing threat of pandemics resulting from the ever smaller world being created every day by increasing worldwide commerce and travel?

In fact, why even restrict this meeting to American participants? The President should think about either inviting their foreign counterparts to the session as well, or to a follow-up meeting.

That’s what my humanitarian instincts tell me.

And my more political self? It would advise the President explicitly and publicly to offer his buddy, Chinese leader Xi Jinping, whatever assistance the Chinese need. For good measure, he should propose sending a team of American scientists and public health experts from the government and private sector to China to assess the situation first-hand (including the status of the disease and China’s progress in combating it) and develop recommendations to improve the Chinese response.

Clearly, these actions would serve humanitarian ends. But they would also put Beijing’s dictators in quite the pickle. Right after having their clocks cleaned in the trade negotiations, they’d be put in a position of accepting American help (which would involve a huge loss of the face so critical in Chinese culture), or declining assistance (which can only further anger a Chinese public that’s already not thrilled with the crisis management skills of either the central government or local officials). In other words, either way, the United States scores political points with public opinion both worldwide and in China in particular.

Meanwhile, no one could legitimately criticize Mr. Trump for declaring that all agriculture imports from China are being banned, since the CDC admits that, although it lacks “any evidence to suggest that animals or animal products imported from China pose a risk for spreading 2019-nCoV [the technical name for the virus in question] in the United States,” that “This is a rapidly evolving situation.”

It’s become a well-worn cliché that the Chinese word for “crisis” combines the characters for “danger” and “opportunity.” But even though this specific claim seems questionable at best, the underlying idea and logic are compelling, and need to be applied to U.S. coronavirus policy liji (Chinese for “immediately”).  There’s no excuse, to quote former Chicago Mayor Rahm Emanuel, for letting the opportunity go to waste.