Free Trade or Medical Supplies: Do Countries Have to Choose?
April 20, 2020
On April 10, the United States followed the actions of dozens of other countries and restricted exports for five different types of personal protective equipment (PPE). While the government is responsible for the protection of its citizens and is blamed when medical professionals do not have the supplies they need, these actions do not come without consequences. This is not just a disagreement about economic policy or commitments to free trade but a question of what will most effectively address this crisis. By closing the borders and imposing export restrictions, the United States diminishes its reputation as a world leader, justifies the adoption of similar restrictions by other countries, risks foreign retaliation on critical U.S. imports, and imposes a greater burden on countries that depend on U.S. medical supplies. A more effective alternative would liberalize trade in medical supplies based on the pharmaceutical zero-for-zero initiative, develop a committee at the World Trade Organization (WTO) on crisis response, eliminate tariffs on medical supplies, and accelerate the process for issuing compulsory licenses.
Q1: What does this new rule restrict?
A1: The Federal Emergency Management Agency (FEMA) recently published a temporary rule in the federal register that restricted exports of five different types of personal protective equipment (PPE) for 125 days. The five different categories include N95 filtering facepiece respirators, other filtering facepiece respirators, elastomeric air-purifying respirators, PPE surgical masks, and PPE gloves or surgical gloves. The rule tasks U.S. Customs and Border Protection (CBP) with detaining PPE exports. Once detained, CBP will contact FEMA for export approval and either allow the shipment based on a list of exceptions or return the shipment for domestic use, though how goods will be returned and distributed remains unclear. The rule was issued using authority granted to the Executive Branch through the Defense Production Act (DPA) of 1950 and implemented an April 3 Presidential Memorandum, which directed the Department of Homeland Security (DHS) to allocate certain scarce PPE for domestic use. Alongside the April 3 memo, President Trump issued a statement reassuring companies and customers overseas that PPE exports would not be impacted “when doing so is consistent with United States policy and in the national interest of the United States.” The April 10 rule initially sparked confusion among exporters and was ultimately relaxed to allow exports to Canada, Mexico, and U.S. military bases. However, companies that are allowed to ship goods are still expected to experience significant delays due to the new approval process.
Q2: What is the objective of the rule?
A2: The rule’s goal is to ensure that domestically produced PPE is used to combat the coronavirus in the United States. As of April 1, the government’s emergency stockpile of respirator masks, gloves, and other medical supplies were nearly gone, according to DHS officials. In March, the House Committee on Oversight and Reform’s letter to Department of Health and Human Services (HHS) Secretary Alex Azar and Assistant Secretary Kadlec reiterated that the federal government possessed only 12 million N95 masks in the Strategic National Stockpile while estimating that the health care system would need 3.5 billion masks to address the crisis. As a surgeon in California said in March, “We are at war with no ammo.” In February, HHS ordered “up to 500 million approved (and/or FDA cleared) N95 respirators or other surgical masks/facemasks” over an 18 month period to begin to meet this demand. Meanwhile, medical supplies produced in the United States continued to be exported. Forbes reported that in just a single day, nearly 280 million N95 masks were purchased by overseas buyers. As criticism over the administration’s handling over the crisis continued to grow both from state officials and the general public, the decision was made to restrict exports of PPE.
Q3: What will be the impact of restricting United States medical exports?
A3: There will be both winners and losers as a result of restricting exports. The immediate winners should ideally be U.S. healthcare workers in need of these five categories of PPE. As discussed, the United States is facing severe shortages, and these restrictions would redirect items destined overseas to be distributed domestically. While there remain several unknowns such as how these items will be repurchased and distributed, this policy should increase supplies available in the United States from U.S. manufacturers, at least in the short term. However, one loser from export restrictions could be the same as the winners: U.S. health care workers. The United States is the largest importer of medical goods in the world. Notably, China provided the United States most of its imports of PPE prior to the Covid-19 outbreak. Because of U.S. reliance on imports, it is vulnerable to foreign export restrictions, and U.S. adoption of export restrictions provides justification for others to do the same.
Amid national measures being taken to address national equipment shortages, it cannot be forgotten that there is a global shortage of PPE and other products needed to fight Covid-19. While export restrictions will benefit U.S. health care workers by redirecting roughly $1.1 billion of U.S. PPE exports for domestic use, the countries these supplies were intended for will lose access to critical equipment. The United States has the luxury of taking these measures with domestic manufacturers as large as 3M, but most other countries do not have this capability. In fact, more than 40 percent of PPE exports globally come from just China, Germany, and the United States. By restricting exports, the United States is effectively leaving the burden to others to prevent a significant humanitarian disaster from unfolding.
Q4: How does this compare to other countries’ export restrictions?
A4: As the Scholl Chair has written previously, countries around the world have been employing trade-restrictive measures as a response to the current crisis. As of April 16, 75 countries have either limited or banned medical exports, which only amplifies the effects of the U.S. decision.
For example, India announced last week it planned to place additional exports restrictions on medical supplies including hydroxychloroquine, an antimalarial drug being tested as a potential treatment to the coronavirus. President Trump quickly responded, and following his call with Prime Minister Modi told reporters, “If he doesn’t allow it to come out that would be okay, but of course there may be retaliation, why wouldn’t there be?” While India ultimately reversed its decision and removed its export ban, the same question still applies—if the United States restricts exports, why wouldn’t there be retaliation?
China, the producer of half the world’s face masks, was the first country to be affected by the virus and was also the first country to restrict exports of medical supplies. Though production of PPE has increased, and the virus in China may be in retreat, several companies such as Canadian manufacturer Medicom have told the New York Times they are still not authorized by the Chinese government to export outside of China. A number of other countries, including France, Germany, and the United Kingdom, have also adopted trade-restrictive measures in different forms such as export bans, export authorization requirements, and threats to revoke licenses of medical suppliers if they export abroad.he EU is now taking action to loosen restrictions, however, and by inserting a 30-day expiration date serves as a model for others that want to balance immediate needs with ensuring that trade restrictive measures do not outlast the pandemic.
Q5: What is the alternative to export restrictions?
A5: There are no easy solutions to this problem. Doctors, nurses, and patients infected by Covid-19 are not presently concerned with the United States upholding a commitment to free trade, especially given equipment shortages and the protectionist measures in other countries such as China. In March, medical workers who started the hashtag #GetMePPE simply wanted to know how soon the supplies they needed would be there. There is an element of a zero-sum game worth recognizing: every mask exported is a mask that a nurse or a doctor in the United States could have used. It is important, therefore, to emphasize that this debate is not simply about the right economic policy, but to many, a question viewed as life or death. As a result, if restricting exports is a bad idea due to potential retaliation, additional foreign export restrictions, and humanitarian repercussions, the alternative needs to be clear.
First, Secretary-General Angel Gurria of the Organization for Economic Cooperation and Development (OECD) proposed several alternatives in March that deserve recalling. To address countries’ immediate needs, Gurria proposed accelerating trade, not slowing it down. In the recent FEMA rule, for example, not only are exports restricted, but also products that are exempted are expected to face significant delays at customs as well. Speeding up this process can be done by digitizing formalities at border checks, enabling cross-border transfers of sensitive data to monitor epidemics, and eliminating tariffs on medical supplies. These are tangible policies that countries could take. In addition, as the Scholl Chair noted, liberalizing medical supplies through the pharmaceutical zero-for-zero initiative and developing a committee on crisis response at the WTO would also have a significant impact. A global pandemic requires a global response. No country can by itself produce all of the medical equipment and other supplies it needs to combat Covid-19. While governments have the responsibility to ensure supplies get where they are needed during times of crisis, leaders should also realize that they must balance immediate domestic needs with maintaining international supply chains necessary to produce PPE and other critical items. Governments must also remember that the virus does not acknowledge borders. When a pandemic recedes in one country, export restrictions should recede along with it to allow critical goods to flow to where the virus remains.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C. Jack Caporal is an associate fellow with the CSIS Scholl Chair in International Business. John Hoffner is an intern with the CSIS Scholl Chair.
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