Pharmaceutical Manufacturing is an American Success Story, We Should Reject Buy American Mandates

The Coronavirus pandemic has imposed an unprecedented strain on the U.S. healthcare system and the economy.

Some policymakers are using the pandemic as an excuse to push “Buy American” mandates that would place unnecessary sourcing requirements on medicines and medical inputs purchased with federal dollars.

This is misguided. The majority of medicines consumed in the U.S. are manufactured in the U.S, in part because America is also a leader in medical innovation. This also benefits the country through high-paying jobs and access to medicines not available in many other countries. 

If implemented, Buy American mandates will disrupt the medical supply chain, threatening timely access to medicines and leading to retaliatory actions from trading partners. During this unprecedented health crisis, a Buy American policy could even threaten our ability to beat the Coronavirus pandemic.

Instead of destabilizing our innovation ecosystem with price controls, burdensome regulations, and heavy-handed government mandates, we need to encourage advanced manufacturing capabilities with less government interference, lower taxes, and other incentives to maintain America’s global leadership in biomedical innovation.

America is not dependent on China for medical innovation

Advocates of Buy American mandates have falsely stated that the U.S. is overly dependent on China for medicines. This is not true – the U.S. medical supply chain is diverse and not overly reliant on any foreign country. Most medicines consumed by the U.S. are made in the U.S. and a small fraction of imports are manufactured in China. 

Based on data compiled by Americans for Tax Reform using inputs from the Bureau of Economic Analysis and the Commerce Department, 70 percent of medicines by dollar value that are consumed in the U.S. are manufactured domestically. The remaining 30 percent of medicines that are manufactured overseas come from more than 90 different countries.

Of the 30 percent of imported medicines, 77 percent of come from the European Union, Switzerland, and the United Kingdom. Just 1 percent of imports are from China.

The same diversity is present when it comes to the Advanced Pharmaceutical Ingredients (API) used in medicines consumed in the U.S.

According to one study, of the nearly 1,800 facilities in the world that manufacture APIs used in U.S. medicines, just 13 percent of are in China. More than double – 28 percent of API facilities are in the U.S.

American pharmaceutical manufacturing is strong

Pharmaceutical manufacturers invest over $100 billion in the U.S. economy every year, directly supporting over 800,000 jobs. When indirect jobs are included, pharmaceutical innovation supports 4 million jobs and $1.1 trillion in total economic impact.

Pharmaceutical jobs are also high paying – the average compensation is over $126,000 – more than double the $60,000 average compensation in the U.S.

This robust industry means that U.S. patients have greater access to new life-saving and life-preserving medicines.

Of the 290 new medical substances that were launched worldwide between 2011 and 2018, the U.S. had access to 90 percent. By contrast, the United Kingdom had 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent.

These findings were echoed in a report by the Council on Economic Advisers, which found that the U.S. has access to a far greater proportion of cures compared with other countries:

“[M]any of the 200 top-selling drugs examined here show no quantities sold in the countries of comparison, suggesting that those drugs are not available for sale in that country. For example, in Australia, only 97 of the 200 drugs show evidence of significant sales. Similarly, Canada has only 120 of the drugs, France 109, and Germany 133.”

Buy American mandates increase manufacturing costs resulting in shortages and delays

History shows that Buy American mandates restrict choices for consumers and manufacturers leading to higher prices and reducing access. For example:

  • Under a Buy American mandate, some estimates show that the costs of manufacturing medicines could be up to five times higher
  • According to a study by the Heritage Foundation, Buy American mandates create additional, costly regulatory burdens for producers, increase costs for American taxpayers, and are unlikely to yield job growth in target industries.
  • A 2010 report by the Government Accountability Office found that Buy American mandates caused delays in implementing new projects due to the complexity in finding alternate suppliers and being forced to redesign projects.
  • A 2009 report by the Peterson Institute for International Economics found that Buy American mandates on steel production would have minimal positive impacts on the U.S. and lead to retaliation from other countries, creating job losses.

Free market groups and activists, and economists oppose Buy American mandates

Over 30 organizations recently sent a letter opposed to Buy American mandates to Treasury Secretary Steven Mnuchin, National Economic Council Director Larry Kudlow, Senate Majority Leader Mitch McConnell, and House Republican Leader Kevin McCarthy. 

As the groups wrote, this policy will harm the healthcare system, leading to reduce access and higher prices: 

“This protectionist proposal has no place in our healthcare system and will upend complex and efficient supply chains, leading to higher prices, threatening access to medicines, and opening the U.S. to retaliatory measures from other countries.” 

In addition, leading economists, including Nobel prize-winners and former members of the White House Council of Economic Advisers, sent a letter to President Trump and Congress warning against a Buy American mandate on medicines.