‘Made in America’ won’t be as simple as it sounds

To understand America’s dependence on global supply chains, you need to start with the Cold War. What drove U.S. foreign policy and the behavior of most nations — and the world’s larger corporations — was where they sat in relation to Moscow and Washington. 

Then Japan boomed and tripped; the two Germanys merged. China started its ascent; India began producing tens of thousands of engineering PhDs. Europe experimented with when its aggregated sovereignties could be flamboyantly displayed — like antitrust policy — and when not. Other nations such as North Korea, Iran and Venezuela flirted with edgy, dangerous, attention-grabbing contrarianism. 

Bill Clinton was the first real post-Cold War U.S. president, as the IT revolution was crushing the distinctiveness of nations. Books, money, ideas, services, faith, pornography, organizations all began to traverse the globe as bits of data and algorithms, while incredible wealth amassed in Silicon Valley and New York. 

Tom Friedman’s book, “The Lexus and the Olive Tree,” conveyed the message to all nations that they had to become less analog, less different and more like the U.S., to morph into the kind of economy where capital could flow in and out, rewarding winners and punishing losers. If they donned what Friedman termed the “golden straitjacket,” they could reap the high-growth rewards of a turbocharged digital economy that enriched other industries and robber barons around them.

Clinton-style globalization was built on a simple proposition that trust in networks was growing, borders were blurring, and market economies were becoming increasingly like each other with similar standards, laws and transparency. In a high-trust world, with large corporations able to operate far beyond their home territories, with a nation of a billion people like China becoming a high-growth and high-consumption economy, the world became truly interconnected, and parts of it deeply enmeshed. Much like Friedman predicted, large corporations (and sometimes small ones) could chase low wages abroad, or special regulatory arrangements or tax favors, or lesser environmental regulations — or they could invest abroad and build manufacturing, distribution and even R&D centers to service foreign buyers. 

That is the era that gave birth to complex, highly sophisticated “supply chains” in which raw materials could be accessed in South Africa, Chile, Australia, Vietnam or China, with a value-added stop in Hong Kong, Singapore, Brazil or Thailand, then another in China, South Korea, Mexico or Canada, for buyers in America and Europe — who themselves would go through similar global acquisition and step-by-step production for cars, machines, or the processing of soybeans and chicken feed from Maryland back to China. 

The overlapping tapestries of regulations, wage rates, transportation costs, market proximity and investment fads — as China once was in the 1990s — only partially explain the flourishing world of supply chains. The term “supply chain” is designed to be monotonously uninteresting, as rock-solid trust is designed to be — no drama. Supply chains depend on the bland but foundational certainty that materials and supplies will arrive without stress, without disruption, exactly on time in a just-in-time world. 

Fast forward from high-trust globalization, just-in-time networks and globally sprawling supply chains to a world that is interconnected — but one where walls and fear are rising, data and algorithms are not fully dependable or safe, trade wars are back, terrorism freezes up communities and nations, a killer pandemic is on a global prowl for victims. And one where America itself is engaged in neo-mercantilism with its trading partners, doing what it can to undermine nearly every league of allies and international organization to which it belongs. 

In that world, supply chains — which used to be drama-free and vital — are fragile and endangered.

COVID-19 and the race to kill, curb or treat it focused attention on America’s deficits in just about everything it needed, from ventilators and respirators to protective garments, to some drugs such as hydroxychloroquine and azithromycin that were thought to be early therapies. Global hoarding commenced, and a law-of-the-jungle race for materials broke out worldwide as people realized that America, which had been kicking its allies’ shins and demonizing China, was dependent on those very nations for its drug needs.

Teva Pharmaceutical USA’s President and CEO, Brendan O’Grady, told me that his firm, the world’s largest generics drug manufacturer, supplies “almost 200 million patients on a daily basis” and has “the largest, most complex supply chain in the world.” Teva has 60 manufacturing sites worldwide and, according to O’Grady, “the vast majority of Teva’s supply chain for the U.S. relies on Europe, North America and Israel.” About a third of its medicines supplied to the U.S. are manufactured here; another third comes from India, Israel or from China. He said no finished drugs are manufactured in China but that less than 10 percent of API (active pharmaceutical ingredients) often come from China, 10 percent from India, and 80 percent from Europe.  

Numerous drug CEOs have repeated to me — that “because” of the nimbleness and the diversity of access and supply points built into their massive international supply chains, they have supplied all requested demand thus far during the pandemic. But the fear is that China, India, Germany or other countries could, in a tiff, shut the spigot of materials, particularly as President Trump has threatened so many other nations with suspended trade or sanctions. Americans fear being the ones subjected to the treatment that their president has threatened toward others.

Responding to this anxiety about drug-supply dependency, O’Grady is one of many CEOs who has called for the U.S. to modernize the Strategic National Stockpile for the nation’s most vital and essential medicines for this current environment — a medical version of the Strategic Petroleum Reserve. The stockpile that could be filled by producers from around the world should calm near-term nerves, but he and other industry leaders say new alliances and agreements around drug production and supply can be negotiated among trusted global partners. 

Premier’s president, Michael Alkire, who leads one of the world’s largest health products supply networks, says too much production dependence rests with China today and should be shifted elsewhere. Some could come back to the U.S. — but that should be a national security-crafted decision with big budgets, regulatory and tax waivers, and committed purchasing levels to make the prospect of onshore drug production viable in America again.

In a recent exchange, Sen. Mark Warner (D-Va.) said he was surprised that so much of the active pharmaceutical ingredients industry was based in China and should come back to America. There is virtually no API production in the U.S. today — and, in the same conversation, Teva’s O’Grady said it would take major planning, resources and regulatory changes to make those firms move.

Moving from high-trust globalization to a hybrid of resurgent nationalisms and more ad hoc trade arrangements is not the ideal ecosystem for dependable supply chains — but the alternatives require strategic plans, significant investment and resources, and the kind of industrial policy that the U.S. moved away from after the Cold War. 

Sadly, perhaps, a new cold war will create the focus of mind and priority that will enable some of this production to return here — but from a quality of life perspective, just about everyone would lose.

Steve Clemons is editor at large of The Hill. Follow him on Twitter @SCClemons.