04.08.2020 0

After Chinese coronavirus, we need to make essential items in America based on strategic need—and enough of them

By Robert Romano

There are many lessons for our country to learn from the Chinese coronavirus both from a public health perspective as well as the capacity of the federal and state governments to critically impact the well-being of the U.S. economy negatively as is being seen by the closures that are driving unemployment to the moon.

We’re learning that with these deadly novel coronaviruses and flus that pass from animals to humans overseas, early identification is essential and that immediate travel restrictions can be effective in slowing the spread to U.S. shores. This experience will have long term implications for sectors of the economy like the airline industry, since we know this won’t be the last time this happens. An early call like the one made President Donald Trump to close travel to China on Jan. 31 that may have saved hundreds of thousands of lives.

It also highlights the need for transparency from China. For a country bent on being the world’s supplier, Beijing sure did not help the global community out when they did not immediately bring this virus to everyone’s attention, particularly deadly to the elderly and those with underlying conditions. There’s a price to be paid for that, and they still have not provided information about patient zero in Wuhan. The longer they wait, the more public attitudes will set in that the communist government there is simply not a reliable international partner.

This experience also serves as a strong warning against economy-killing policies like the Green New Deal and universal income, which use a combination of prohibitions and incentives by banning the entire carbon-based energy industry and to reduce the need for people to work to earn a living. We can see right now how sharply unemployment can rise when individuals are given enough of an incentive to stay home, with anywhere from 10 million to 13 million jobs lost in less than a month.

But the first and foremost lesson is that in a national emergency or a world war, global supply chains are profoundly dangerous and can be deadly. After the Chinese coronavirus pandemic, and in the phase four legislation now under consideration by President Trump and Congress, as well as any executive actions necessary under existing law, the federal government needs to require that essential items be made here in America, and enough of them.

This is an important discussion. Markets support a nation’s economic well-being, but they do not determine national interests, and sometimes what’s cheaper or more cost efficient is not necessarily in the national interest or protects the lives of the American people.


 

We already know about the supply chain shortages now on ventilators. A 2015 paper published in Clinical Infectious Diseases predicted the very supply shortage we are now experiencing. Now with the pandemic upon us, we’re having to resort to car manufacturers retrofitting their factories to produce these desperately needed machines.

But many of these machines are already made in the United States, just not enough of them as state governments and hospitals simply did not adequately plan for a respiratory pandemic. Additionally, there was a run on ventilators earlier this year with $27 million worth in January and February going, believe it or not, to China.

The CDC Strategic National Stockpile, now being tapped, is owed to preparations made during the Bush and Obama administrations following a series of emergencies. It’s still might not be enough, or it might be barely enough to meet our needs right now, but it shows that a little planning ahead can go a long way.

Our dependence on foreign manufacturers stretches to many other items. In 2019, Sen. Chuck Grassley (R-Iowa) sent a letter to the Department of Health and Human Services (HHS) Secretary Alex Azar, noting that almost all our medicine comes from China, writing, “Unbeknownst to many consumers… 80 percent of Active Pharmaceutical Ingredients are produced abroad, the majority in China and India; however, the FDA only inspected one in five registered human drug manufacturing facilities abroad last year.”

A 2016 National Academy of Science paper noted that 90 percent of our latex gloves are made in Malaysia.

In the 1973 Arab oil embargo, the U.S. learned painfully what foreign dependence on oil could lead to.

It goes on and on. In different areas of economic production, history has shown again and again foreign dependence hurts America badly.  In the normal course of business, outsourcing can be cheaper, but in an emergency, those supply chains are instantly taxed and shortages emerge.

And then there’s the rare earth mineral shortage that will surely come into play should the U.S. and China ever find itself in a military conflict or even just a trade war. Rare earths are used in smart phones, computers and high-tech military hardware, but for years China has had a global monopoly on their production. The Trump administration fortunately is already addressing this shortfall.

The Pentagon began asking miners to submit plans to develop more U.S. mines and processing facilities last summer. “The overall goal is to secure and assure a viable, domestic supplier (of rare earths) for the long-term,” according the Pentagon paper sent to the miners.

To that end, President Donald Trump invoked the 1950 Defense Production Act on July 22 in a proclamation, writing, “the domestic production capability for Samarium Cobalt Rare Earth Permanent Magnets is essential to the national defense. Without Presidential action under section 303 of the Act, United States industry cannot reasonably be expected to provide the production capability for Samarium Cobalt Rare Earth Permanent Magnets adequately and in a timely manner.”

The proclamation added, “Further, purchases, purchase commitments, or other action pursuant to section 303 of the Act are the most cost-effective, expedient, and practical alternative method for meeting the need for this critical capability.”

By invoking the law, the Defense Department can go ahead and fund directly the construction of rare earth processing facilities in the U.S. and expand mining operations by working with private contractors.

The U.S. consumed about 9,500 metric tons of rare earths in 2018, according to the U.S. Geological Survey, and we are 100 percent reliant on imports of rare earth metals, 80 percent of which comes from China.

According to the U.S. Geological Survey, “The estimated value of rare-earth compounds and metals imported by the United States in 2018 was $160 million, an increase from $137 million in 2017.” But these numbers do not account for rare earths used in manufacturing in China and then exported.

Despite being in a commanding position for years, the good news is that China has been losing global market share, from 95 percent of global production in 2010 down to 80 percent global market share now, largely because Australia ramped up production, which is now the number two producer in the world at 20,000 metric tons in 2018. Australia also has all of the elements we would be looking for, according to Geoscience Australia. Additionally, a discovery of 16 million tons of rare earth oxides off the coast of Japan last year could supply the minerals for the entire world for centuries.

We have about 1.4 million metric tons of reserves in the U.S., and after years of not mining rare earths, in 2018 the U.S. ramped up production to 15,000 tons of compounds according to the U.S. Geological Survey.

MP Materials, which runs the Mountain Pass site in California’s San Bernardino County, the nation’s only operational rare earth facility, is currently exporting to China for processing but plans to have its own domestic processing facilities running this year.

But simply sourcing the minerals here is only half the battle. We still need to make these electronics, computers and other military hardware components here, because in the event of war, we will instantly have shortages. But almost all of our high-tech production has been outsourced to Asia. That should change now.

Preparation might also dispel any notions Beijing has about using our dependence to their advantage in trade negotiations, and compel compliance with the new U.S.-China trade deal.  In other words, bringing more production back here might actually avert a conflict, because the temptation for China to assert a global strategic monopoly on this line of production to fuel aggression will have been removed. Weakness is provocative.

An overall stronger manufacturing base here in the U.S. might have averted the current coronavirus crisis combined with adequate emergency preparedness locally where it matters the most. It’s the combination of the two that is needed. The free market’s invisible hand can only allocate what you think you need in a cost-efficient manner in peacetime, but in an emergency or war, that all goes out the window every single time.

There must be a balance between national strategic needs and big business’ desire to boost profit margins by cutting production costs. With the Chinese coronavirus, it proved to be deadly. Next time it could be even worse.

While globalist alarmists have been busy warning of Smoot-Hawley depressions for a generation, they were undercutting U.S. strategic interests the whole time. We must say never again. President Trump warned us this would happen in 2016 in so many words. This is the discussion that is urgently needed in any phase four legislation and further executive actions taken authorized under curren law.

Fortunately, President Trump is just the right guy for the job to lead that discussion, owing to the fact he was the only national candidate in a generation who had the foresight to emphasize the desperate need for American manufacturing. Globalism and foreign dependence is a sickness, and Trump is the cure.

Robert Romano is the Vice President of Public Policy at Americans for Limited Government.

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