Experts Make the Case for Reshoring the U.S. Medical Supply Industry

By Matt Heller
Jun 14 2021 |
About 80% of active ingredients in America’s pharmaceutical and over the counter medications now come from China and India. Getty Images

It’s essential for U.S. national security and the economy at large to make pharmaceuticals and medical supplies in the United States, panelists agreed during an online event.

As followers of this blog know, American manufacturing encompasses so much of our society, from steel and infrastructure to autos and airplanes to pharmaceuticals and medical supplies.

Unfortunately, American manufacturing capacity and supply chains in the pharmaceutical industry are far from ideal, and very little is now Made in the USA.

As the COVID-19 pandemic has recently shown with medical shortages, the U.S. desperately needs to increase its domestic production of both medicine and medical supplies. Doing so will boost both the economy and our national security.

A recent panel assembled by the Brookings Institute and the Olin School of Business at Washington University in St. Louis looked at how to do just that. The general consensus was clear: the US can — and must — reshore its medical supply chains.

“Unless we have some diversification throughout [the medical] supply chain from the raw materials to the chemicals, all the way up to finished drugs, we won’t have the degree of self-sufficiency that we need for the basic essentials,” said Rosemary Gibson, a senior advisor to The Hastings Center (and a previous guest on The Manufacturing Report podcast).

Gibson added that the United States needs to make “what’s really important, that we have to have, either during a pandemic or if a freighter blocks the Suez Canal for a week.”

Fortunately, this is not something impossible. The panelists expressed their confidence that rebuilding manufacturing capacity in the medical supply industry is fully feasible if the government takes initiative.

Panelists included academics, like Tony Sardella, an adjunct professor and senior research advisor at the Olin School’s Center for Analytics and Business Insights, as well as pharmaceutical manufacturers like David H. Thompson, the co-founder and CTO of Continuity Pharma (and a professor of Chemistry at Purdue University to boot).

Spiro Gavaris, president of Specialty Generics at Mallinckrodt Pharmaceuticals, noted that the U.S. does have manufacturing capacity, but is not producing what it could be.

“It’s feasible from a manufacturing perspective to ramp up from covering 30% of the US market to the whole market,” he said, although it’s worth caveating that there are some areas where there is almost no U.S. production, which will need to instead be built from the ground up.

In order to boost U.S. medical manufacturing capacity, the panelists made clear that there were a number of steps that ought to be taken by the Biden administration.

Chief among those will be to provide manufacturers with tax credits and forgivable loans to support research and development, as well as to build and renovate production plants to bring new products to market. This is because in the medical industry, manufacturers often cannot take on all the risk that comes with developing new products alone. Fortunately, this does not require that much funding: Gavaris mentioned that less than a billion dollars per year in incremental subsidies would stabilize the healthcare market and create thousands of new manufacturing jobs right here in the United States.

This financial investment for boosting U.S. manufacturing capacity is also important, because U.S. suppliers face competition from firms in countries like China, where excessive government subsidies allow products to be produced at rates US firms cannot compete with. This harms US competitiveness and stops medical entrepreneurs from developing new products.

As Gibson explained, if you want to start a manufacturing company in the U.S., “you’re not just competing with other companies, but with companies that are hugely subsidized by their governments.”

Other important steps also include fixing loopholes in “Buy America” laws that allow for foreign-made drugs to qualify as American and compete for federal contracts and streamlining FDA approval processes to prioritize US-based firms over foreign ones. Both regulatory issues are already conducted by many of our foreign competitors, but do not happen here.

Applying Buy America to government procurement of medical supplies, including things like N95 masks and other personal protective equipment (PPE), also has the support of a number of labor and industry groups, who argue doing so will ensure the United States will be better prepared in future crises.

Overall, it’s clear that the United States needs to prioritize making more medical products domestically. We’ve all seen with the COVID-19 pandemic just how important these goods are for our society and we need to make sure that Americans have unfettered access to them. The stakes are too high to have to depend on foreign competitors. Plus, we can create thousands of new manufacturing jobs in the process, which is just icing on the cake for pursuing this common-sense strategy.