Among the many reckonings prompted by COVID-19 was the painful realization that countries are highly dependent on imported medical supplies. Half a decade later, that dependence remains. Now, as hantavirus spreads, and the Strait of Hormuz remains largely unpassable, there is more reason than ever for alarm. As a result, many Western countries are hastily trying to shore up health security.
We all remember China’s personal protective equipment (PPE) diplomacy during the first horrid weeks of COVID-19. Countries deemed friendly were allowed to purchase face masks, gloves, and other indispensable supplies, while countries deemed unfriendly were not. Serbia was in; Sweden was out. Beijing played favorites among European Union countries, sending modest deliveries to some member states but none to others even though the EU had donated PPE to China when COVID-19 first hit. Elsewhere, governments blocked PPE exports not out of spite but because their countries needed the supplies themselves.
Among the many reckonings prompted by COVID-19 was the painful realization that countries are highly dependent on imported medical supplies. Half a decade later, that dependence remains. Now, as hantavirus spreads, and the Strait of Hormuz remains largely unpassable, there is more reason than ever for alarm. As a result, many Western countries are hastily trying to shore up health security.
We all remember China’s personal protective equipment (PPE) diplomacy during the first horrid weeks of COVID-19. Countries deemed friendly were allowed to purchase face masks, gloves, and other indispensable supplies, while countries deemed unfriendly were not. Serbia was in; Sweden was out. Beijing played favorites among European Union countries, sending modest deliveries to some member states but none to others even though the EU had donated PPE to China when COVID-19 first hit. Elsewhere, governments blocked PPE exports not out of spite but because their countries needed the supplies themselves.
Fortunately, COVID-19 has by now mostly been defeated, but the chaos and exploitation it triggered may well return. A host of countries—including the United States and most of Europe—currently depend on other nations for much more than PPE.
In testimony to the U.S. Congress this March, Marta E. Wosinska, a healthcare economist at the Brookings Institution, pointed out that “Chinese‑produced active ingredients are included in perhaps a quarter of the generic drug unit volume” in the United States. What’s more, Wosinska noted, more than 40 percent of “key starting materials used in U.S.‑approved active ingredients are sole-sourced from China.”
Europe is similarly dependent on Asian imports. The continent’s last paracetamol manufacturing plant closed in 2008, and it has only one fully operational antibiotics plant. As for the United Kingdom, a House of Lords report in February concluded that “the vast majority of our medicines are manufactured, or are reliant on key ingredients from outside of the UK—primarily from India, China, or from single sources.”
“China is the world’s largest exporter of active ingredients, India of the finished product,” said Diederik Stadig, a healthcare economist at ING Research. Among generics, the type of pharmaceuticals most commonly used in prescriptions, drugs made in China and India enjoy near-global domination.
COVID-19 delivered an acute reminder of the downsides of healthcare dependence on other countries. “COVID was a wake-up call for Western policymakers,” Stadig said. “Today, there’s a broad sense that healthcare is a key sector in national security and should be treated as such.”
And COVID-19 was “just” a pandemic. Now Western leaders have to worry about what would happen if a major war—bigger than those in Iran and Ukraine—erupted tomorrow. And they have to worry about what would happen if China or India decided to flex its muscles by withholding drugs.
Part of the challenge is that if a major war broke out in Europe or elsewhere, armed forces would need even more medicines and medical supplies—for which they’d find themselves competing with civilians. Political leaders, of course, also have to worry about pandemics, which is why they’re taking the hantavirus-stricken cruise liner currently docked off the Canary Islands so seriously.
The EU is already working hard to reshore the manufacturing of active ingredients, critical medicines, and essential drugs such as antibiotics and insulin. The EU Critical Medicines Act, which would ensure such manufacturing, was overwhelmingly passed by the European Parliament in January. On May 12, the EU Council and the European Parliament agreed on a revised version of the bill, which both bodies are likely to sign off on within the next few weeks.
However, the new legislation doesn’t mean that all aspirin or heart medication will be made in the EU. “The Europeans seem to have accepted that generics will be produced in Asia, but with the Critical Medicines Act, we’d produce more of those critical medicines on European soil at higher prices,” Stadig said.
Indeed, the reshored manufacturing will produce medicines that are more expensive—by about 20 to 40 percent. But in a tense and often hostile world, being able to make critical medicines at home is indispensable. Post-Brexit U.K. won’t be part of the EU undertaking, of course. Instead, the House of Lords advises Britain “to work with international partners to develop a diverse range of medicine resilience measures to make sure the UK is not left behind as other countries shore up their medicine supply.”
As for the United States, it’s pursuing a protectionist approach to drugs. “The U.S. has tried to incentivize manufacturing at home,” Stadig said. “That has meant tariffs, but they’ve mostly hit branded pharmaceuticals made in Europe. Generics will mostly remain in Asia because the economies of scale are so significant.”
Indeed, last July the United States imposed a 15 percent tariff on the EU, including on pharmaceuticals. Then, in September, President Donald Trump announced that the United States would charge a 100 percent tariff on imports of branded or patented pharmaceutical products starting Oct. 1, with only companies building manufacturing plants in the United States exempted. (Generics manufacturers faced no such tariffs.) Trump didn’t follow through, but then last month, he repeated the threat. Trying to establish health security by punishing European makers but not Chinese ones is a perilous strategy.
The United States is pursuing a more promising course when it comes to the design of new drugs, however. Here, Washington is using government funds to keep up with China in biomedical innovation, biotechnology, and medical artificial intelligence. This effort is much needed. In 2014, 4 percent of the global pipeline of new innovative molecules was Chinese; today, ING estimates that the rate has risen to one-third, Stadig said.
With wars and pandemics in front of the gates, it’s no surprise that countries are desperately trying to bolster health security. But undoing supply chains and specializations built up over decades of globalization isn’t quick or easy. Fortunately, there’s good news, at least for some nations: Fortune will smile on those that have close and respectful relations with others.
