The trade balance is calculated as the difference between the value of U.S. exports and the value of U.S. imports. The United States “runs a trade deficit” when Americans purchase more goods and services from foreigners than foreigners purchase from Americans.
To be more precise, the trade deficit is the amount by which the total value of purchases of U.S. consumers, businesses, and governments from foreign suppliers exceeds the total value of purchases of foreign consumers, businesses, and governments from U.S. suppliers.
The trade deficit gets a lot of negative attention. It’s got a bad reputation—probably because it’s called a “deficit.” Sounds like something that needs fixing. But the truth is that the trade deficit has a lot going for it. It’s just, well, misunderstood.
Over the years, my colleagues and I have written extensively about the real meaning of the trade deficit; that it is not a reflection of trade policy; that it is to be expected for a country whose government issues the world’s primary reserve currency; and that the dollars that go abroad to purchase imports find their way back into the U.S. economy in the form of investment in equities, real estate, factories, other structures, equipment, and corporate and government debt; and that the only portion of that capital inflow from foreigners that current and future taxpayers need to repay is the principal and interest on government debt (which implicates fiscally irresponsible government, not trade).
President Trump, Commerce Secretary Wilbur Ross, White House adviser Peter Navarro, and others in the administration don’t seem to get this. They see trade a zero sum game, with exports as Team America’s points, imports as the foreign team’s points, and the trade account as the scoreboard. The deficit on that scoreboard (the trade deficit) means that Team America is losing at trade and it’s losing because the foreign team—much like the Houston Astros—cheats.
The misguided objective of trade policy for the past three years has been to minimize imports and maximize exports. And the tools deployed in pursuit of these objectives—sweeping tariffs, withdrawal from a major trans‐pacific trade agreement, wanton subversion of the international rule of trade law, and compelling partners into renegotiations of trade agreements under the barrel of a gun—have failed to eliminate (or even reduce) that trade deficit. In fact, between 2016 and 2019, the goods deficit increased from $735 billion to $853 billion. That said, the administration is likely to make progress toward that goal this year because U.S. trade deficits decline during economic contractions.
But there’s a better way to think of the meaning of the trade deficit. Milton Friedman liked to point out that exports are things we produce but don’t get to consume, while imports are things we consume without having to produce. Yet, when Americans get more stuff from foreigners than foreigners get from Americans, it’s called a “deficit.” Go figure!
If you happen to use toilet paper, the following example may resonate.
In 2019, U.S. producers exported over 72 million kilograms (about 802 million rolls) of the supple utensil to be deployed by people in other countries. WHAT? HOW COULD THEY? DON’T THEY KNOW HOW MUCH WE LOVE TP IN AMERICA? Indeed, we do (no pun)!
According to Statista.com, the United States leads the world in toilet paper consumption, averaging 141 rolls of the fluffy stuff per person per year. So, the precious supply that U.S. producers exported last year could have sated the derrieres of some 5.7 million Americans. Juxtapose that stat against the wrestling matches you’ve witnessed in your grocer’s paper products aisle.
But here’s the thing. In 2019, not only was toilet paper shipped abroad. It was also imported—and in vastly more significant sums. Volumes of over 194 million kilograms or nearly 2.2 billion rolls were imported last year, satisfying the demands of approximately 15.6 million Americans. In other words, international trade in 2019 produced a net surplus of about 1.4 billion rolls of toilet paper (2.2 billion rolls imported minus 0.8 billion rolls exported) for people in the United States. Trade helped meet the toilet tissue demands of a net 10 million Americans. That’s 10 million fewer people poised to rumble in the aisles of Target and Walmart.
Unfortunately, the trade statistics aren’t recorded in a way that illustrates the facts that Milton Friedman shared with us. They record the dollars that changed hands, not the number of rolls put to good use. But at the end of the day (and, throughout the day), we know which paper ultimately serves the purpose we demand.
Some people talk about trade as though it were an end in itself. It’s not. Trade is a means to an end.
We trade so that we can specialize. We specialize so that we can produce more. We produce more so that we can consume and save more. That is how we create wealth and raise living standards. Just like electricity or machinery or expertise, trade is a tool we use to leverage our physical, mental, and creative abilities to obtain more efficiently more of the things we need and want. When we remove barriers to trade, we create greater scope for specialization, which means we can produce more value.
Why would anyone want to throw sand into the gears of these machines? Before the Trump presidency, that would have been a rhetorical question. But this administration is hellbent on repatriating supply chains and exterminating imports and, like the Luddites before them, the Trump administration and its enablers are doing their best to destroy the machinery of trade. But before addressing some of the pressing life or death issues surrounding trade policy in the midst of this pandemic, let me borrow a passage about “why we trade” from a chapter I contributed to a cool new Cato Institute book titled Visions of Liberty, which was originated, organized, and edited by Aaron Ross Powell and Paul Matzko:
Imagine life without trade. Imagine a life of solitude. To attend to your own subsistence, you wake each morning before sunrise to make your clothes, build and repair your meager shelter, hunt and harvest your food, concoct rudimentary salves for what ails you, and toil in other difficult and tedious tasks. Forget luxuries. Forget leisure. All of your time would be consumed trying to produce basic necessities merely to subsist. Life would be nasty, brutish, and short.
Fortunately, most members of modern societies choose not to live that way. In fact, one of the defining features of modern society is that most of its members recognize—actively or tacitly—the benefits of institutions, such as cooperation. Most of us don’t attempt to make everything we wish to consume. Instead, we specialize in a few, or a couple, or just one value‐added endeavor—one profession. What makes specialization possible is our commitment to the concept of exchange, which is the ultimate expression of cooperation.
The purpose of exchange is to enable each of us to focus our productive efforts on what we do best. Rather than allocate small portions of our time to the impossible task of producing everything we need and want, we specialize in what we do best, produce more of it than we need, and exchange that surplus for other things we need or want but haven’t produced.
The law of comparative advantage explains why this arrangement enables us to produce, and thus consume, more output than would be the case in the absence of specialization and trade. If Aaron can produce $100 worth of venison in eight hours but only $50 worth of clothing in eight hours, he has a comparative advantage producing venison. By specializing in venison production, Aaron forgoes $1 worth of clothing to obtain $2 worth of meat. But to forgo production of clothing, Aaron needs some assurances that he can obtain clothing by exchanging surplus venison.
Because Paul, who lives nearby, is more efficient at producing clothing than venison—he can make $40 of clothing but only $30 of venison in an eight‐hour day—he specializes in clothing production and forgoes producing venison at all, knowing he can obtain it through exchange with Aaron. Paul has a comparative advantage producing clothing.
How do we know Aaron and Paul are better off by specializing and exchanging? By specializing, their combined output is $140 per day ($100 of venison and $40 of clothing). Had they chosen to live in solitude and not exchange, they could still produce $140 per day, but Aaron would have only venison and Paul would have only clothing. Any attempt by either man to produce a combination of these products would yield less total output. If each devoted four hours each to venison and clothing production, for example, their combined daily output would be $110. Aaron would produce $50 of venison and $25 of clothing; Paul would produce $15 of venison and $20 of clothing.
Moving from a two‐person economy illustration, in the modern economy, we specialize in an occupation and exchange the monetized form of the output we produce most efficiently [our wages and salaries] for the goods and services we produce less efficiently. It’s the same concept on a grand scale. Enlarging markets entails the reduction or elimination of barriers that inhibit the free flow of goods, services, capital, and labor. The larger the market, the greater is the scope for specialization, exchange, and economic growth. Just as consumers have a greater variety and a better quality of items to purchase with their monetized output, producers have access to a greater variety and a better quality of inputs for producing most efficiently.
We trade so that we can move from subsistence toward abundance. When we restrict trade, we limit the scope for specialization. When we limit the scope for specialization, we produce and consume (and save) less than we could. When we restrict trade, we move in the wrong direction–from abundance toward subsistence. This is true regardless of the products or services being restricted and regardless of the reasons offered by policymakers for those restrictions.
Americans are much less free to trade today than we were before the Trump presidency. Since his inauguration, President Trump has imposed new tariffs on nearly half a trillion dollars of imports (that’s roughly one‐fifth of all imports and two‐thirds of imports from China). In 2017 (before the steel and aluminum, and China tariffs went into effect), U.S. imports from the world amounted to $2.3 trillion, with Customs and Border Protection taking $33 billion in duties. That amounted to an effective tariff rate of 1.42 percent.
In 2019 (the first full year that Trump’s tariffs were in effect), U.S. imports amounted to $2.5 trillion, with Customs taking over $71 billion. That $38 billion in additional taxes doubled the effective tariff rate to 2.85 percent, and came out of the pockets of these U.S. businesses and consumers. Among those businesses are producers of medical equipment and supplies, and parts thereof. But regardless of whether they produce medical products, all of those businesses reflect the benefits of trade. They channel the benefits of specialization to the whole economy, which take the form of more value added, which means more consumption and savings, which means more progress toward abundance. The tariffs they have been incurring impede that process and reverse our progress toward abundance.
So what should a president concerned about limiting the pandemic’s economic and human costs do about these trade restrictions? Obviously, he should lift them. Despite ongoing rumors that Trump would suspend duty collection for a period of three months to free up cash flow for businesses to enable them to keep more people on their payrolls, no such actions have been taken. Instead, rumors persist that Trump will sign an executive order mandating that federal agency procurement of medical supplies and pharmaceuticals be governed by “Buy American” provisions. Yes, the administration’s answer to medical supply shortages is not to lift the tariffs contributing to the shortage, but to compound the problem by limiting domestic access to foreign supply.
The Trump administration is not taking the pandemic seriously enough. Its protectionism contributes to the rising COVID-19 contraction and fatality rates.
Economic nationalism was on the rise before the spread of COVID-19, and worryingly, it may be picking up even more as a result.
Countries around the world are experiencing the biggest public health crisis in recent memory, and there are concerns about having the necessary supplies to deal with it. It is understandable that governments are afraid that they will be short of the medical care products they need.
The proper response, however, is not an “every country for itself” hoarding of these products. Instead, all countries should play a constructive role in addressing the problem, taking into account their current public health situation. As our colleague Scott Lincicome put it last week, the proper response by government here should be:
conducting international diplomacy and multilateral coordination of public health and economic issues in order to share best practices, ensure global medical collaboration on potential cures, and prevent counterproductive, “beggar‐thy‐neighbor” policies such as hoarding or export restrictions;
Unfortunately, there are signs that some governments are headed in the wrong direction. So far, 54 countries have implemented some form of export restriction on medical supplies.
There have even been actions to restrict food exports. To date, the United States has not joined in this approach, but a member of U.S. Congress recently proposed a full ban on certain critical medical supplies. With the number of cases surging quickly in the United States, proposals such as this one could gain support.
As Lincicome suggests, what countries should be doing instead is coordinating with each other, which will help them figure out who needs what products at a given moment. Each country is at a different stage of the COVID-19 crisis. Those who are in the midst of the crisis should be reaching out to tell the rest of the world what they need. And those who are in recovery or have not been hit too hard, such as China and Japan, should be helping those who need it.
There was speculation that China, a major producer of medical supplies, was restricting exports, but the evidence so far suggests that has not happened. After dealing with its internal crisis, China is now trying to export again: It approved the export of 5 million masks to South Korea; and a Chinese company recently signed a contract with the Italian government to provide 8 million masks. And as Reuters reported on Sunday:
A planeload of desperately needed medical supplies arrived in New York from China on Sunday, the first in a series of flights over the next 30 days organized by the White House to help fight the coronavirus, a White House official said.
A commercial carrier landed at John F. Kennedy airport carrying gloves, gowns and masks for distribution in New York, New Jersey and Connecticut, three hard‐hit states battling to care for a crush of coronavirus patients.
The first plane, funded by the Federal Emergency Management Agency, carried 130,000 N‑95 masks; nearly 1.8 million surgical masks and gowns, more than 10.3 million gloves; and more than 70,000 thermometers.
(Of course, there have also been restrictions on the import side, but those can easily be removed by the countries imposing them. Hoarding goods for your own citizens to use is at least understandable. Restricting your own ability to buy foreign products, through tariffs or Buy American provisions, makes no sense.)
Beyond products, people with expertise are crucial as well. The Economist recently noted the following:
veterans from the earliest battles of the pandemic are taking their knowledge to others. On March 12th eight Chinese doctors, led by Liang Zongang, a professor of cardiopulmonary reanimation, arrived in Italy on a charter flight that brought medical equipment supplied by the Chinese Red Cross. They were followed on March 18th by around 300 Chinese intensive‐care doctors.
There has been a lot of blame thrown around relating to the origins of the coronavirus and the actions taken in the early months. All of that can be sorted out later in the interest of preventing this from happening again. Public health experts need to have access to the full details in relation to both the origins and actions of each government in response.
For now, though, we need to focus on getting through the current public health crisis. The best approach is for nations to coordinate the relief effort. (Our colleague Inu Manak wrote last week about how the WTO could play a role here.) China’s contributions have been very helpful, and the U.S. State Department recently announced its own efforts.
There will be opportunities for other countries to help as well. There could be a second wave of the virus in China, and there will almost certainly be a dangerous spread through the developing world. Any country with the resources to help should plan to do so.
In the meantime, export restrictions should only be used if absolutely necessary—if a country is in the worst stages of the crisis and cannot spare any supplies. Otherwise, we should let the need for these supplies dictate where they are sold.
National measures to address the challenges faced by COVID-19 have been proliferating at breakneck speed across the world. While there have been a number of important efforts to track these measures, international coordination has been lagging. Though the immediate crisis we each individually feel is close to home, it is shared among the entire world. Just as no person is immune from the virus, neither is any country. A global pandemic requires a global response. The good news is that we already have many mechanisms in place to collaborate on an international level, and now is the time, if any, to use them.
One area where coordination would be especially helpful at this time of crisis is in international trade. With many countries facing critical shortages of personal protective equipment (PPE), ventilators, and other medical supplies, keeping supply chains moving and markets open is integral. A new report issued by economist Simon Evenett from the University of St. Gallen in Switzerland found that 54 countries have imposed export restrictions on medical goods this year. While seven countries (Australia, Brunei, Canada, Chile, Myanmar, New Zealand and Singapore) affirmed “the importance of refraining from the imposition of export controls or tariffs and non‐tariff barriers and of removing any existing trade restrictive measures on essential goods, especially medical supplies, at this time,” the United States has remained silent on this issue.
The Director‐General to the World Trade Organization (WTO), Roberto Azevêdo, recently announced an effort to enhance transparency of measures countries are taking that may be trade disruptive. The WTO can actually play an important role here. While most people associate the organization with its dispute settlement mechanism, which allows states to challenge trade restrictive measures of other states through adjudication, there is much more to the WTO than dispute settlement. In fact, the transparency mechanism highlighted by Azevêdo is an important component of the daily interaction of WTO members in other areas, allowing countries to have quick knowledge of what others are doing. But this mechanism can be used in other ways too.
For instance, the new COVID-19 notifications could include not just the measures countries are taking, but also the supply shortages they face. Instead of one‐off phone calls with individual leaders, this type of notification system could help in identifying the places where need is most critical, giving businesses and governments the information they need to coordinate an effective response. Such notifications can then be discussed within the Council for Trade in Goods (often comprised of ambassador‐level diplomats), or at the General Council, the highest deliberative body of the WTO (after the Ministerial Conference, which was cancelled this year). These notifications can also be made part of the WTO’s innovative ePing system, which allows the public and private sector to be quickly alerted to new product requirements. The WTO could create similar alerts for medical goods shortages, so that governments and the private sector can respond without delay.
While some are arguing for more protectionism and autarky amidst the pandemic, these calls are both problematic and short‐sighted. This line of thinking underpins the views of U.S. Trade Representative Robert Lighthizer, who recently defended the administration’s wide use of tariffs, suggesting that it would encourage the diversification of supply chains, “and—better yet—more manufacturing in the U.S.” First, diversifying supply chains in good times is hard enough, and in the middle of crisis, foolhardy. Lifting these tariffs immediately makes economic sense and is the moral thing to do as Americans face mounting economic challenges (because China doesn’t pay the tariffs, we do). Second, pushing for “reshoring” or things like “Buy American” provisions is also harmful, and will undoubtedly raise costs for consumers and producers alike, and add additional stress to manufacturers trying to ramp up production amid shortages.
As my colleague Simon Lester recently explained:
We want to have good trading relationships with the rest of the world, because when (inevitably) something goes wrong with our own production, we want to be able to quickly get help from others. We are better off if this manufacturing knowledge is distributed around the world. We just want to make sure that we have sources of supply in countries that we can count on.
To ensure the steady stream of supply, we need international coordination, and the WTO is well placed to play a critical role in this effort. This week, Ambassador Alan Wolff, Deputy Director‐General to the WTO, called for an “unprecedented level” of international cooperation in the face of the COVID-19 pandemic, noting that “The WTO also serves as a venue for discussions, cooperation, coordination and negotiation, even if the discussions will for the time being largely not be face‐to‐face.” These functions must continue, and a special effort be made to identify the gaps in national responses so that medical products can be directed to places most in need.
Furthermore, as the pandemic spreads, not every country will have the capacity to tackle these challenges alone, and developing countries that rely on imports of medical goods, will be particularly affected by export bans if they continue. More than half of the WTO’s membership is made up of developing countries, and they have extensive experience in using the current notification system. Let’s not reinvent the wheel and make it harder for countries to get the help they need—the WTO’s transparency mechanism can be an essential tool in this regard. Therefore, instead of taking on the attitude of every country for itself, we must quickly recognize the global nature of this current crisis, and respond in kind.
The Trump Administration is reportedly considering an executive order to restrict federal agencies from purchasing foreign medical supplies and equipment. That would be a mistake. As a general matter—and, especially during a pandemic—the White House should avoid measures that impede Americans’ access to affordable, quality medical supplies.
Discriminatory government procurement laws are part of the disastrous trade policy legacy of President Herbert Hoover, who signed into law, on his last full day in office, the Buy American Act in 1933. This law was intended to compel the U.S. government to procure American‐made goods, in an era when federal government expenditures were expanding dramatically. Of course, restricting the supply of goods and services available for government acquisition only ensured (and still does ensure) that taxpayers got the smallest bang for their buck. It also made it harder (and still does) for U.S. suppliers to compete abroad, as foreign governments adopted similar measures.
Although tariffs and other trade barriers were reduced considerably over the decades from their Hoover‐era peaks, discrimination against foreign goods through “Buy America” and other protectionist procurement rules continued. Some international trade rules restraining these kinds of practices emerged over the years, but they were riddled with exceptions. Today, these rules are the shiny object catching the attention of an administration that considers imports a cost, trade a zero‐sum game, and walls preferable to bridges.
These discriminatory procurement provisions are always a problem, but today the stakes are even higher. The public health crisis is bringing the economy to its knees. Supply shortages abound. And demand for goods and services has plummeted amid widespread social distancing.
Advocates of “Buy American” provisions and American “self‐sufficiency,” more broadly, invoke a noble purpose: To decouple America from its reliance on China, which presents some vaguely defined national security threat. Reports suggest that the prospective executive order picks up on this theme, noting that the president would designate active pharmaceutical ingredients as “critical technology,” necessary for national security.
But if diversifying away from China (which, for some products, may be prudent from a national security perspective) is the objective, it is hard to justify the collateral damage that Buy American provisions would cause. Buy American means forgoing purchases from all other countries, not just China.
In a report detailing pharmaceutical drug shortages even before the pandemic, the FDA noted that only 8 percent of FDA‐approved finished dosage form (FDF) manufacturing sites and 14 percent of active pharmaceutical ingredients (API) sites were located in China in 2018. Comparatively, the United States was home to 37 percent and 12 percent of the world’s FDF and API facilities, respectively. In other words, restricting U.S. government acquisitions to U.S.-manufactured pharmaceuticals would put 55 percent of the world’s FDA‐approved FDF sites and 74 percent of its API facilities off limits. That outcome risks severe supply shortages and very high prices for finished pharmaceutical medications—two scourges the administration should be trying to subdue.
Meanwhile, a review of the Census Bureau’s import statistics suggests that the argument that Americans are too reliant on China for pharmaceuticals and their ingredients is greatly exaggerated. In 2019, the United States imported $132 billion of products classified in the Harmonized Tariff Schedule of the United States (HTS) as “Pharmaceuticals” (Chapter 30). Of that $132 billion, only $1.6 billion (or 1.2%) came from China. As for the chemical ingredients in pharmaceutical products—most of which are classified in Chapter 29 of the HTS under “Organic Chemicals”—U.S. imports amounted to $49.2 billion in 2019, of which China accounted for $7.7 billion, or 15.6 percent. Granted, there may be some specific products or ingredients where China accounts for a more significant share of U.S. imports, but broad Buy American restrictions would be akin to using a sledgehammer to do a scalpel’s job.
“Buy American” provisions also generate other costs. On top of the economic disruptions, protectionist procurement rules would risk further damage to already frayed U.S. relationships with other countries at a time when we should be working together to contain the pandemic and its economic costs. This could further erode America’s sullied reputation and further impede the next president’s efforts to reestablish trust and reassert U.S. global leadership.
There is still time to avoid this outcome. President Trump should note that trade is doing some great things to help fight the pandemic, that it would be wise to forego a Buy American executive order, and that he should heed the advice of other advisers and Senate Finance Committee Republicans. Too much is at stake.
The Trump administration has not been shy about expressing its fondness for tariffs. It imposes them whenever it can find a reason, and resists any call to lower or remove them afterwards. But now and then there is an argument against tariffs that even it cannot withstand: In the context of a pandemic, tariffs on medical‐care products are a truly awful policy.
The administration recently removed a few of the tariffs it had imposed on imports of medical products from China as part of the U.S.-China trade war. Subsequently, late last week, it put out the following notice: “In light of ongoing developments, the Office of the U.S. Trade Representative (USTR) is requesting public comments on possible further modifications to remove duties from additional medical‐care products.”
With the internet, it’s very easy to file public comments, and as of the last time I checked there have been 394 of them. Some are like this:
| ALL THE |
| TARIFFS |
I approve this message, but it’s not directly on point and probably won’t influence the administration. Others are more helpful. Here is one example:
Consistent with the USTR’s request for public comments to modify or remove duties for essential medical‐care products we are offering specific information on non‐contact infrared thermometers. These products are medically necessary in the response to limit the outbreak of COVID-19.HTSUS Code: 9025.1990.10 Digital battery operated non‐contact infrared thermometers are used for screening and treating patients for elevated body temperature. The thermometers measure body temperature, surface temperature and ambient temperature. The thermometers do not require entering the patient’s body or make contact with the skin thereby reducing the risk of cross‐contamination to patients and health care workers. There is a visual/audible alert when temperatures exceed 100.4F. They are accurate, precise and the measurements are displayed instantly. The operating procedure is simple thus reducing human errors. Our company is an importer and distributor of non‐contract infrared thermometers. Duties on these products increases the cost and impacts the ability to obtain them and to sustain the critical supply chain. The duties add significant cost to the distribution chain, and to the end users such as hospitals, clinics, long term care facilities and services conducting screening to limit the COVID-19 outbreak.
And here is another:
On behalf of the companies listed at the bottom of this text, we are requesting an exemption from 301 tariffs “on all products listed in Section XI (Textile and Textile Articles) that are suitable for use in making protective masks, hospital gowns, or any item that the Secretary of Health and Human Services determines to be a priority for use during a public health emergency declared pursuant to section 319, and is certified at the time of import or reliquidation by the importer for such purpose.” We would suggest making the effective date the date the 301 tariffs were imposed so that material currently sitting in factories that are useable for serving this purpose also are covered under the exemption. This will increase liquidity at these companies as they reliquidate those items so they can afford to stock fabrics that they need now. The Men’s Apparel industry is prepared to convert its plants to produce critical needs, with the initial focus being protective masks. The industry’s hope is to be able to begin production using existing fabric supplies, and then enhance the products if possible, by finding more effective input materials. Our hope is to source as much as possible from domestic sources especially given time constraints. We are also being approached to make hospital gowns with inputs yet to be determined. This industry does not normally supply medical end users. We need the latitude to acquire fabrics to make whatever we are asked to make without concern of a large penalty duty assessment. We also don’t want to find that at the end of the current emergency we are sitting with fabrics that were also subject to high 301 duties that are not part of our normal supply inventory. We believe that domestic mills also should have access to yarns and other items they need to supply our industry and others who want to produce needed products. Therefore, we urge you to quickly adopt a broad exemption that covers textile products tied to serving the emergency needs of our country.
I sincerely hope that the Trump administration takes these and other requests from the private sector seriously and removes tariffs on the products at issue. We know the views of this administration on protectionism, trade deficits, etc., and it is not going to be eager to grant these requests. For the time being, however, the administration should put the broader trade policy debate aside and deal with the most urgent public health crisis most of us have ever seen. If there is a remotely plausible argument as to how removing tariffs on particular products could help with this crisis, the administration should take action.
At the behest of public health officials and politicians, many Americans have submitted —to varying degrees—to the practice of social distancing. The logic behind the push for social distancing is that it will help “flatten the curve.” Flattening the curve is shorthand for slowing the contagion to limit the surge in demand for health care services (hospitals, doctors, nurses, beds, respirators, testing kits, gloves, sanitizers, and other protective gear), which we have learned in recent weeks are in woefully short supply. By distancing ourselves from each other, the rate of contagion is forecast to be more manageable and less likely to strain the health care system to the point of collapse. Fair enough.
Through laws, advisements, and social pressure, the economy has been put into an induced coma to relieve pressure on our medical infrastructure. But, of course, that preemptive behavior carries huge financial and human costs. Government is notorious for touting the benefits and ignoring the costs of the regulations it imposes or the actions it recommends. The concept of maximizing the net benefits is utterly foreign to most policymakers.
As Chris Edwards describes, the economy cannot withstand a prolonged shutdown, and with economic contraction comes worsening despair, destitution, and increased morbidity and mortality rates. The benefits of extreme social distancing may save lives over the next few months, but the costs—in addition to what may become the worst economic contraction the world has ever witnessed—include lost lives, too. Accordingly, it makes no sense to put all the onus on reducing demand for health services—especially when doing so requires our taking actions that will kill people anyway.
It’s only a matter of time before people—especially younger people with less savings to fall back on—start to reckon that social distancing is an inferior choice. If we are to prevent or mitigate this eventuality, we must aim to shorten the period where social distancing is necessary. That can only happen if we ramp up efforts on the medical infrastructure supply side.
Over the past 48 hours, we have seen stories about certain U.S. manufacturers working to convert their factories into facilities to produce badly needed medical supplies, and equipment or shipping companies rerouting and reconfiguring what they deliver and when. But is this really happening on a meaningful scale? Has there been an impact on the supply of masks, gloves, and respirators? Has there been follow through on these stated initiatives?
I haven’t been able to get answers. I’ve inquired with officials who work for major business trade associations in Washington, but have received no responses. Two days ago, Ford Motor Company made noises about reopening shuttered facilities to produce respirators, but the last substantive news story on this matter that I’ve seen was published yesterday in Politico. The story notes:
“[M]anufacturing facilities in the United States are already at 100 percent production capacity and are looking to ramp up by another 15 or 20 percent,” said Jim Jeffries, the senior vice president for public affairs for AdvaMed, which represents medical technology companies. He said in the medical industry, companies are adding third shifts and repurposing production lines, while also looking to other sectors — autos among them — to see if protective equipment can be “retrofitted” to help combat the crisis.
“You’re seeing a really strong industry‐wide mobilization to the fight,” Jeffries said. “They’re looking at literally every possibility to make sure that we can meet the demand.”
But a spokesperson for General Motors underscored Thursday that there is no concrete plan yet to do anything.
“This is very early,” said GM spokesperson Jeannine Ginivan. “Right now it’s just an internal feasibility study on whether it‘s possible for us to help out in the production of medical equipment.”
This doesn’t sound promising. Of course, for many existing businesses, converting operations to produce these needed commodities doesn’t portend profitability. And without a degree of certainty as to how much will be demanded and for how long, it’s a crapshoot to know how much to invest in production capacity and distribution.
For those and other reasons, business appears slow, even unwilling, to meet the challenge. This statement from the Business Round Table praising the administration’s decision to open a THREE MONTH comment period on the question of whether and which tariffs should or should not be lifted on imports from China speaks to a complete absence of urgency.
While I am not recommending the government (especially THIS government) commandeer factories and other private assets to redirect manufacturing output to bridging the medical supply gap (less drastic inducements, such as tax forgiveness and future tax credit allowances, are available), that redirection has to happen so that everyone can be tested, the sick quarantined, and the healthy set free to begin the long process of resuscitating the economy. The alternative is unimaginable.