Trump's trade policy is hampering the US fight against COVID-19

An alarming unintended consequence of President Donald Trump’s misguided trade war with China has suddenly threatened to cripple the US fight against the COVID-19 pandemic. The administration’s tariffs on Chinese medical products may contribute to shortages and higher costs of vital equipment at a time of nationwide health crisis. In the last two years, Trump’s policy has forced China to divert the sales of these products—including protective gear for doctors and nurses and high-tech equipment to monitor patients—from the United States to other markets, and now the US medical establishment faces looming trouble importing these necessities from other countries, which may be hoarding them to meet their own health crises.

To deal with this issue, the Trump administration quietly announced on March 10 and 12, 2020, that it would temporarily reduce some tariffs imposed on Chinese products to treat the coronavirus pandemic. But those actions, which effectively acknowledged that trade wars can endanger public health, covered only a handful of urgently needed products. Trump’s tariffs had been slapped on nearly $5 billion of US imports of medical goods from China, about 26 percent of all medical goods imported from all countries. Now that there are potential supply shortages globally, the US health crisis demands that the administration comprehensively and permanently reverse these policies of self-harm.

This calamity was hardly unforeseen. In August 2018, the Trump administration’s US Trade Representative convened a hearing to ask the public whether it should impose tariffs on such products. Matt Rowan, president of the Health Industry Distributors Association (HIDA), warned against the impact that Trump’s tariffs would have on the American health sector. “These products are essential to protecting healthcare providers and their patients every single day,” he said with shocking prescience. “The healthcare products on the proposed list are used widely throughout healthcare settings and are a critical component of our nation's response to public health emergencies.”

His warnings, echoed by many others over the next year, went unheeded.[1] Trump’s reversal earlier in March served as an implicit indictment of his administration’s own policy.

But a potential for crisis is not limited to the unnecessary costs and health equipment bottlenecks that Trump’s trade war with China has created. His continued mistreatment of many trading partners, imposition of tariffs and threats of tariffs on their exports, may make it difficult now to get new sources of supplies. Even allies are now lashing out and restricting the flow of medical equipment outside of their borders, including to the United States.

President Trump should immediately admit to the problem his policies have created. His administration should permanently and comprehensively suspend the trade war tariffs on critical medical products from China. And with its former allies, the administration should reverse its isolationist approach and reinvigorate the international cooperation that had formed the basis of US policy for over 70 years.

To avoid even worse tragedies to come, the world needs American leadership now more than ever.

Medical products needed to fight COVID-19

Among the many products that industry experts have identified as important for the fight against the COVID-19 pandemic, some of the most important include personal protective equipment, masks, sterile gloves, and goggles that doctors, nurses, and first responders wear to limit the spread of infectious disease.[2] Also critical is disposable equipment such as hospital gowns, surgical drapes, as well as thermometers and breathing masks, which patients require during a hospital visit. Finally, relatively high-tech medical equipment—including CT systems, ultrasound systems, patient monitors, and X-ray devices—is used to diagnose and treat patients suffering from the disease. Americans imported about $22 billion of such products from the world in 2019, before the outbreak of COVID-19.

Before Trump began the trade war in 2018, US tariffs on imports of most of these products were fairly low.[3] For half of the products imported, the US tariff was even zero. A handful faced nuisance tariffs of less than 4.5 percent, and disposable and other medical headwear had tariffs of 6 to 8 percent (see appendix table at the end of the blog).

Overall, low US tariffs enabled American hospitals and patients to access a plentiful supply of these products at the highest quality and lowest price, including from China: Before the trade war, the United States imported $5 billion of these goods from China, or about 26 percent of US imports of such products at the time.

Trump’s trade war tariffs on China considerably cut US imports of some medical products from there

President Trump began his trade war with China in early 2018. Over the next two years, he raised US tariffs ranging from 15 to 25 percent on $360 billion, or two-thirds, worth of what Americans buy from China. These tariffs on China were imposed under Section 301 of the Trade Act of 1974.

The Trump administration’s tariffs hit hard many medical products now needed to treat COVID-19. Over time, Trump brought more of such products into the firing lines of his trade war, despite additional warnings to the administration of the potential consequences. As Linda O'Neill, also of HIDA, cautioned in her June 2019 testimony on Section 301 tariffs: “Tariffs on critical health care products put a risk to our nation's public health preparedness.”

Trump’s tariffs resulted in a sharp decline in US imports from China of many of these critical products between 2017 and 2019 (figure 1). As the American economy grew, demand for health care services for America’s aging population continued to increase, and US demand for imports of these products from the rest of the world overall grew at over 20 percent. The disruption to trade with China was dramatic.

In the aggregate, US imports of Chinese medical products hit with 10 to 25 percent US tariffs beginning in 2018 fell by 16 percent, or nearly $200 million, between 2017 and 2019. At the same time, US imports of these products from the rest of the world increased by 23 percent.[4] The differences were especially large in CT systems, patient monitors and pulse oximeters, and certain types of disposable medical headwear (figure 1).

In September 2019, Trump hit even more medical products from China with 15 percent tariffs. US imports of these products from the rest of the world also grew 23 percent between 2017 and 2019, while US import growth from China fell to only 13 percent. The smaller negative effect on these products in 2019 is likely due to the US tariffs being at a lower rate (15 percent, not 25 percent) and only being in effect for four months.

Overall, Trump’s tariffs imposed hardship on American medical care purchasers and providers.

In many instances, Americans had no choice but to continue to buy from China, which meant paying an additional cost due to the tariff. Medical equipment cannot instantaneously sprout up at another plant in some other country. American patients demand the safety that comes through Food and Drug Administration (FDA) testing and certification. This process ensures manufacturing facilities do not roll out defective health care equipment.

As Lara Simmons of Medline Industries had explained to the administration in June 2019, “Finding alternative sources of supply for these products to minimize the cost impact of the duties is not a viable option in the near or medium term.... Starting production in the U.S. or any third country would be a time consuming and expensive process due to the FDA regulatory procedure that is required for these products.” She alerted the administration to the timeline of the tariffs’ impact on US health care preparedness: “This process can take more than two years.”

Even for American consumers who tried to switch to non-Chinese suppliers, doing so would come at a cost. Companies and hospitals would need to shift resources to their procurement divisions to search for new manufactures. New products would need to be tested to ensure interoperability and that they met the same quality standards as the old ones that Trump’s tariffs were forcing them to abandon. These financial resources instead could have been spent on patient care or cutting costs.

Finally, America’s own manufacturers of hospital equipment also faced higher costs because of Trump’s tariffs on other products—specifically, the many parts and components. Trump’s 25 percent tariffs remain on over $100 billion of intermediate inputs from China.

Failing to heed the warnings, Trump’s tariffs have disrupted the American health care system’s access to medical products, just when they are needed the most in 2020.

Even with the “phase one” deal, Trump’s tariffs on Chinese medical equipment remain

President Trump implemented his “phase one” trade agreement with China on February 14, 2020. Despite the deal, his additional tariffs remained on $360 billion of imports from China.

And his trade war continues to hinder the availability of medical products. Today, $1.1 billion of imports bought to potentially treat COVID-19 remain subject to Trump’s 25 percent tariffs (figure 2). His duties on $3.3 billion of imports of other critical health care products were cut to only 7.5 percent from 15 percent.

At the request of AdvaMed, an industry lobby group, Trump quietly and temporarily suspended his 7.5 percent tariffs on some products on March 10 and 12, 2020. These exclusions not only are temporary but also cover only part of the product categories illustrated in the figures.[5] While some exclusions were also granted for other products in late 2018 and 2019, they were unable to prevent the dramatic drop in imports from China in 2019 (figure 1). And most of the exclusions are set to expire in 2020. Their effectiveness at restoring imports of critically needed supplies may be limited. Temporary and partial exclusions are not enough. Trade uncertainty, driven by Trump’s policy, remains elevated.

If shortages arise globally, a system of temporary exclusions creates perverse incentives for Chinese medical suppliers to make American customers their last choice. Buyers in South Korea and Italy are not threatening China with tariffs. Contracting on a product with a future delivery date is unattractive if there is a good chance American customers decide they do not want the item—or they default on the purchase—because President Trump has ended a temporary exclusion and once again increased the product’s price in America by 25 percent.

Other countries are restricting their exports of medical equipment, making matters worse for Americans

With COVID-19 creating an unprecedented global health crisis, some of these same medical products are in short supply globally. As the pandemic spread to countries like South Korea and Italy, and demand spiked, exporting countries reacted by imposing restrictions.[6]

Thus far, hospital masks, medical protective clothing, and other personal protective equipment have been the most frequently restricted products, according to data collected by Simon Evenett in the Global Trade Alert. Twenty-four countries have restricted exports of such products between January and March 11, 2020,[7] including Germany, France, Taiwan, and South Korea.

Take personal protective equipment and medical protective clothing. For the United States, the main non-Chinese source of imports is Mexico (figure 3). At the moment, Mexico has not announced any export restrictions, partially because it has relatively few reported COVID-19 cases.[8] But that, of course, could change.

Depending on the product, though, the main foreign source of supply for the United States is often quite different. It is also often not China or Mexico. The European Union is the main source of CT systems, hand sanitizers, patient monitors and pulse oximeters, X-ray equipment, and breathing masks (figure 3). Thus, President Trump’s March 12 statement—subsequently retracted—that he would shut down trade and cargo shipments from the European Union could be devastating and lead to supply shortages of the very medical equipment needed to treat COVID-19 that Americans desperately need.[9]

Trump’s trade war with China, and his general mistreatment of trading partners, including the European Union, has put Americans at risk. With many countries now adopting “me first,” beggar-thy-neighbor export restrictions, the United States may need access to even more friendly foreign suppliers of medical equipment than ever before.

During this crisis, the United States needs to be more open and more cooperative on trade

President Trump should give the American public every chance they need to fight this pandemic by allowing medical professionals and hospitals access to the highest quality, lowest cost, and most accessible supplies, from wherever they can be sourced—including China.

These remain early days. COVID-19, unfortunately, is likely to continue to spread. It is worrisome that other countries are fearing scarcities of medical supplies and restricting exports. The history lesson from global food shortages is that such export restrictions could easily multiply and result in a downward spiral of protectionism.

The answer is not a misguided attempt to bring back all medical equipment production to America. Imagine if this had been done but that the manufacturing facilities had all ended up clustering outside Seattle or New Rochelle, New York, the hotspots of the American outbreak of COVID-19. America’s manufacturing workers are human. Importing medical products from diverse sources globally has huge benefits; conceivably, parts of American production may also be forced to shut down at some point.

But the United States also must lead a policy of international cooperation to fulfill needs tomorrow, not just today. Because the main lesson of pandemics is that any one of us could be next.

Appendix: Medical products needed to fight COVID-19 covered in this analysis Product group HTS code Description US MFN tariff (percent) Section 301 tariff (percent) Exclusion information CT systems 9022.12.0000 Computed tomography (CT) apparatus 0 25 (List 1) Excluded or partially excluded

(October 2019) Patient monitors and pulse oximeters 9018.19.5500 Patient monitoring systems 0 25 (List 1) Not excluded Disposable medical headwear 6505.00.90 Hats and headgear, of textile materials (other than of cotton, flax, wool or man-made fibers), not elsewhere specified or included 8.3* 25 (List 3) Not excluded Disposable medical headwear 6505.00.80 Hats and headgear, of man-made fibers, made up from felt or of textile material, not knitted or crocheted, not in part of braid 7.6* 25 (List 3) Excluded or partially excluded

(February 2020) Thermometer 9025.19.80 Thermometers, for direct reading, not combined with other instruments, other than liquid-filled thermometers 0 25 (List 2) Excluded or partially excluded

(July 2019) Ultrasound systems 9018.12.0000 Ultrasonic scanning apparatus 0 25 (List 1) Excluded or partially excluded

(July 2019) Hand sanitizers 3824.99.9295 for 2017, and 3824.99.9297 for 2018-2019 Chemical products and preparations and residual products of the chemical or allied industries, not elsewhere specified or included 5 25 (List 3) Not excluded Hand sanitizers 3402.20.5100 Surface active, washing and cleaning preparations, whether or not containing soap, put up for retail sale, not elsewhere specified or included 0 25 (List 3) Not excluded X-ray equipment 9022.14.0000 Apparatus based on the use of X-rays for medical, surgical, or veterinary uses, not elsewhere specified or included 0 25 (List 1) Excluded or partially excluded

(December 2018) Oxygen concentrators 8421.39.8040 Gas separation equipment 0 25 (List 1) Excluded or partially excluded

(October 2019) Medical protective clothing 6307.90.72 Surgical drapes, nesoi, not spunlaced or bonded fiber fabric 4.5 7.5 (List 4A) Not excluded Medical protective clothing 6307.90.68 Surgical drapes of spunlaced or bonded fiber fabric disposable surgical drapes of man-made fibers 0 7.5 (List 4A) Excluded or partially excluded

(March 2020) Medical protective clothing 6307.90.60 Surgical drapes of fabric formed on a base of paper or covered or lined with paper 0 7.5 (List 4A) Excluded or partially excluded

(March 2020) Personal protective equipment 6210.10.5000 Garments, made up of fabrics of heading 5602 or 5603: nonwoven disposable apparel designed for use in hospitals, clinics, laboratories and other areas 0 7.5 (List 4A) Excluded or partially excluded

(March 2020) Personal protective equipment 6307.90.9889 Other made-up articles, not elsewhere specified or included 7 7.5 (List 4A) Excluded or partially excluded (March 2020) Protective goggles 9004.90.00 Spectacles, goggles and the like, corrective, protective or other, other than sunglasses 2.5 7.5 (List 4A) Excluded or partially excluded (March 2020) Other medical headwear 6505.00.01 Hair-nets of any material, whether or not lined or trimmed 6.4 7.5 (List 4A) Not excluded Other medical headwear 6506.10.3075 Other headgear, whether or not lined or trimmed, safety headgear, or reinforced or laminated plastics, other than motorcycle helmets 0 7.5 (List 4A) Not excluded Nitrile and Sterile gloves 4015.19.05 Medical gloves of vulcanized rubber other than hard rubber 0 7.5 (List 4A) Excluded or partially excluded

(March 2020) Bougies, catheters, drains and sondes, and parts 9018.39.00 Bougies, drains and sondes, and parts and accessories 0 0 NA Ventilators, oxygen mask and nebulizer, nasal cannula and CPAP machines 9019.20.0000 Ozone therapy, oxygen therapy, aerosol therapy, artificial respiration or other therapeutic respiration apparatus; parts and accessories 0 0 NA Breathing masks 9020.00.6000 Other breathing appliances and gas masks 0 0 NA HTS = Harmonized Tariff Schedule; NA = not applicable; nesoi = not elsewhere specified or included; MFN = most favored nation *Ad valorem equivalent estimates from UN International Trade Centre Trademap. Notes: Products on List 1 faced a 25 percent tariff starting July 6, 2018. Products on List 2 faced a 25 percent tariff starting August 23, 2018. Products on List 3 faced a 10 percent tariff starting September 24, 2018 that was increased to 25 percent on June 15, 2019. Products on List 4A faced a 15 percent tariff on September 1, 2019 that was cut to 7.5 percent on February 14, 2020. Product exclusions are temporary and partial in that they do not cover all subproducts within an HTS-10 (or HTS-08) code. Source: Compiled by the author with data available from the US Harmonized Tariff Schedule as well as US Trade Representative announcements of Section 301 tariffs and exclusions.

Notes

1. See also the testimony before the Trump administration of Lara Simmons, Linda O’Neill, and Ralph Ives on Section 301 tariffs, June 20, 2019 (panel 29). As the novel coronavirus did not exist yet, Rowan and others used examples of earlier public health emergencies and pandemics—e.g., Ebola and H1N1—to make the point.

2. This list is not exhaustive and is based on input from numerous industry experts whom I thank (without implicating for omissions) for sharing their insights. These categories derive from 22 distinct 10- (or 8-) digit Harmonized Tariff Schedule (HTS) products. The appendix table at the end of this blog contains details on the traded products considered in this analysis.

3. Some of the tariff cuts on medical equipment were taken through implementation of the World Trade Organization’s Information Technology II Agreement in 2016.

4. These numbers refer to the growth of the aggregate imports of the products in the top panel of figure 1. Some of this may have been trade diversion, or American consumers paying the costs to switch from Chinese to alternative foreign suppliers. However, consider the third panel of products in figure 1 as a “control group,” as these products did not face any tariffs. US imports of these products from the rest of the world also grew at 22 percent over 2017–19. This suggests that, in the top and middle panels of products in figure 1, the growth response of US imports from the rest of the world caused by trade diversion may have been relatively muted.

5. The product exclusions are more disaggregated than the most disaggregated trade data available publicly—i.e., at the HTS 10-digit level. USTR determines exclusions based on product descriptions, which may form only a subset of imports in a given HTS-10 category. Thus figure 2 presents overestimates of the amount of trade excluded from the tariffs.

6. See Soumaya Keynes, New trade barriers could hamper the supply of masks and medicines, The Economist, March 11, 2020.

7. See Simon J. Evenett, Tackling Coronavirus: The Trade Policy Dimension, Global Trade Alert, March 11, 2020.

8. According to the World Health Organization, as of March 12, 2020, Mexico had only 12 reported cases, all of which were imported.

9. James Politi, “Trump forced to clarify Europe travel restriction over cargo claim,” Financial Times, March 12, 2020.