In a speech last week on US trade relations with China, US Trade Representative Katherine Tai said “this bilateral relationship is complex and competitive.” This is the understatement of the decade. Let me share an illustrative example.
Before the onset of Covid-19, Donald Trump imposed tariffs on more than $ 350 billion in Chinese goods, including supplies of personal protective equipment (PPE) that were subsequently scarce. Trump and current US President Joe Biden subsequently granted tariff extensions for items such as textile face masks, in part because the world’s largest producer, China, accumulated them.
In 2019, China supplied over 70% of US mask imports, sold at a fraction of the cost of US masks, most of which ceased to be manufactured after China’s WTO membership decimated much of the American textile industry. Yet in the early months of the crisis, many American textile manufacturers, particularly in the Carolinas, began to ramp up their own production of masks.
Before the pandemic began, masks made in the United States cost around 50 cents each, according to Luis Arguello Jr, president of a Florida-based medical device company and a member of the American Mask Manufacturer’s Association. During the pandemic, he says, prices fell between 15 and 25 cents as raw material costs fell and U.S. producers became more efficient.
It is not a surprise. Manufacturing is an iterative process. Decision-makers become better and more efficient when they do more together at hubs, as several academics have shown, including Dan Breznitz in his recent book Innovation in real places.
Gradual innovation has made countries like China and Germany rich. But the United States has largely abandoned this model over the past half century and adopted a more fragmented global production system. That’s good for multinationals and Asian workers, but less good for much of Central America, which is the starting point for Trump and Biden’s trade policy.
All of this presents a very delicate challenge for an administration which, in Tai’s words, is trying to create a “worker-centered trade policy” in a country that still operates according to the economics of the University of Chicago school. , in which only sharing and consumer prices matter.
In a post-neoliberal world, this has led to rich ironies. While federal government agencies are bound by Covid-19 sourcing rules supporting domestic producers, states can – and do – solicit offers from companies charging a penny or two for a mask. Since the raw materials for each mask cost around 4 cents on the open market, I wonder if these products are woven by little hands in Xinjiang, the region where China has been accused of running labor camps with Uyghur Muslims imprisoned, or supported by huge state subsidies. Maybe both.
Either way, a bunch of small US companies that have answered the call to produce more masks amid a pandemic are now at risk of going bankrupt. AMMA says its members have lost 5,000 jobs since federal mask purchases slowed in recent months, after being undermined by non-US producers.
None of this is China’s problem. This is America. Whether or not you’re in favor of ‘Buy American’ on things like masks (I am – although I’d be happy to see it turn into ‘Buy American and His Allies’), US lawmakers haven’t forced States to source at the national level, thanks to a flaw in the American recovery plan.
Meanwhile, America’s for-profit, rapacious at best-case hospital system is now looking to save every penny as the usual glut of expensive elective procedures has gone amid Covid. The administration postponed plans to increase tariffs on Chinese medical products until mid-November, as the American Hospital Association lobbied against it, saying it would increase costs for them.
Whatever the cost, the absurdly distorted system of privatized health care in the United States means that hospitals will inevitably charge insurance companies or unlucky patients multiples of that amount. All of this makes me much more sympathetic to the textile manufacturers, who just want the government to set a floor price under PPE, as promised.
These will be future topics for Tai and others who support the rebuilding of America’s industrial ecosystem. But changing the paradigm is not something the sales department can do on its own. “Buy American” doesn’t make sense if you can’t support the demand. Demand cannot be sustained without government incentives, or a real shift from shareholder capitalism to stakeholder capitalism.
The fact that such an offer is controlled by a strategic adversary who does not respect WTO rules makes the transition from an economy based on rewarding consumers in the form of lower prices to an economy which tries increase revenues and build resilience in critical industries including medical equipment, pharmaceuticals, semiconductors and rare earth minerals.
If the United States is serious about rebuilding the manufacturing sector, it will need a much larger and broader public sector engagement that goes beyond “just in time” and toward “just in case”. It will also require a close look at how penny masks are made and if they are really worth the price.