China Trade Policy: Repatriate Supply Chains to Bolster SecurityMarch 24, 2020
Make foreign firms move some production to America in exchange for access to our markets.
Last July seems like the last millennium, but experts were already warning that American reliance on Chinese-made medicine was a strategic risk to the country. Eight months and one pandemic later, the PRC government was already threatening to cut off drug supplies. Dependence on China for medical-mask production forced the U.S. government to lie about the efficacy of masks so that a shortage (from Chinese government hoarding) did not produce a run on supplies that left nothing for medical professionals. While it is undesirable for the U.S. to withdraw from international trade, we should take steps to limit our dependence on an ambitious and unfriendly rival government.
One suggestion has been offered by Senator Tom Cotton (R., Ark.). His plan would, with phase-ins to take account of the current crisis, prohibit the purchase of pharmaceuticals and pharmaceutical ingredients that are produced in China. That is a good first step.
In future years, it will be seen as an act of madness that we allowed our medicine production to be outsourced to a hostile government. The only holdouts will be ideological fanatics and the bought flacks of a government that uses slave labor at home while deploying the language of freedom and business to explain why we should not remove the knife from our throats. As a heuristic, the more opposed the PRC government is to repatriation of supply chains to America (or at least out of China), the better an idea it is.
Senator Marco Rubio (R., Fla.) has proposed federal loans and tax benefits to encourage domestic production of medical supplies. Another policy might complement these suggestions: For key industries, companies that want access to American markets should move some percentage of their production to America.
One instructive example might be the American experience with quotas for foreign automobiles. The 1980s American automobile industry was bloated, inefficient, and dysfunctional. It was losing market share to foreign companies that made more reliable cars at lower prices. The Reagan administration reached an agreement with Japan to “voluntarily” limit car imports in order for the American automobile industry to have a chance to reform and regain competitiveness.
In its stated goals, the policy was a failure. The Big Three automakers stayed unreformed and dysfunctional. They continued to lose domestic market share. During the Great Recession, two of the Big Three (General Motors and Chrysler) went bankrupt and were bailed out by the taxpayers.
But there was an unanticipated benefit. In a paper that condemned the Reagan automobile quotas as having raised prices on American consumers,…