Tariffs, COVID-19 add to supply chains complications

Many plastics processors have retooled their production in the pandemic, like Maryland Thermoform Corp., which switched to making face shields, intubation boxes for health care workers treating COVID-19 patients and sneeze guards for retail stores at its Baltimore factory.

That's a positive example of how factories have switched their production to try to both survive the pandemic's economic shock and address an unprecedented global health challenge.

But with the country still struggling with getting enough personal protective equipment, a government agency in Washington is taking a detailed look at how manufacturing supply chains should be strengthened in the wake of the coronavirus.

The U.S. International Trade Commission held hearings Sept. 23-24 to gather information on that question, including looking at reshoring and efforts to boost domestic manufacturing of medical device production.

Scott Paul, head of the Alliance for American Manufacturing, offered Baltimore-based Maryland Thermoform as an example in his testimony about how companies have reworked their factories, largely without government direction.

"There are thousands of manufacturers who have in some way pivoted to making essential goods, ranging from relationships that local hospitals develop with plastics manufacturers to (make) face shields … to more sophisticated efforts looking at testing kit capacity," Paul said.

But he argued that beyond such individual company efforts, what's needed is a more muscular policy effort in Washington.

"At the crux of it, I think it's an underdeveloped industrial policy," he said. "If our policy makers are looking at ways to respond to this, they need to look at that lack of an industrial policy."

There was a lot of consensus at the hearing around the need to strengthen domestic supply chains, particularly for PPE. But there was less of a consensus on the best ways to do that.

Paul and others, for example, argued that tariffs would help build up U.S. manufacturing. But others in the medical device and plastics supply chains urged different approaches.

The American Chemistry Council, for example, said USITC should recommend reducing tariffs on plastics and chemicals needed for manufacturing PPE and medical goods to fight COVID-19, including those tariffs the Trump administration has put on Chinese imports.

"Tariffs make supply chains less resilient and more prone to exogenous shocks," said Ed Brzytwa, director of international trade with Washington-based ACC. "Increased trade barriers in recent years have created a far more uncertain global business environment for chemical manufacturers. Tariffs and other trade barriers have injected unexpected costs in global and regional supply chains."

The International Safety Equipment Association, which represents companies making protective equipment, told the USITC that companies need their supply chains to be globally competitive.

Dan Glucksman, ISEA director of public affairs, cited the example of polypropylene used in N95 masks, suggesting companies making those masks want access to global supplies.

"Polypropylene is one of the feedstocks for the N95 respirator," he said. "The U.S. has some; I guess we're No. 3 in terms of polypropylene manufacturing. There's Europe, there's also China.

"There's a lot of complexity in reshoring," he said. "To some extent, a lot of companies feel the supply chains they have right now keep them globally competitive."

An executive with the Advanced Medical Technology Association told the hearing the industry is taking a look at just-in-time production models that have been criticized for not holding up as well in the pandemic, but she also said it's a complex topic.

"Does just-in-time make sense in these sorts of circumstances? I think we're still digesting the situation and talking to manufacturers and hospitals," said Abby Pratt, AdvaMed's vice president of global strategy and analysis and chair of its COVID-19 Supply Chain Task Force.

"I don't think manufacturers and distributors will throw away just-in-time and lean, but I think there will be some soul searching around stockpiling and inventory management," she said. "I think the jury's still out."

She suggested that rather than wholesale changes in supply chains, manufacturers may look more at ways to build redundant or parallel channels into their global supply chains.

Congressional direction

USITC, a quasi-independent U.S. agency that normally conducts dumping and tariff investigations for the government, is conducting the review under direction from Congress.

The Democratic-controlled House Ways and Means Committee and the Republican-controlled Senate Finance Committee jointly told the commission last month to examine COVID-19 related supply chain problems and report back by Dec. 15.

ACC argued that other countries have loosened trade barriers and tariffs around COVID-related products. The U.S. government did suspend some tariffs for 90 days in April, but ACC argued for stronger measures.

Brzytwa told the commission that many plastics are involved in COVID-related goods, including polyurethanes that will be vital to keeping vaccines extremely cold so they remain viable as moved out to the public to be administered.

"Chemical innovations like polyurethanes will be essential to providing insulation to cold storage appliances that will serve as the last critical leg of the race to deliver a viable, effective vaccine to communities around the globe," he said.

He said other plastic products include specialty polymers used to make thermoplastic films that can be repeatedly sterilized, TPUs for gowns, mattresses and tubing, antioxidants to create smaller pores between polyolefin fibers and polyethylene used in powered air purifying respirators.

Some of the witnesses called for stronger requirements for government purchasing of U.S.-made products, but AdvaMed argued that domestic purchasing mandates are more complex than they seem.

Ralph Ives, executive vice president of global strategy and analysis for AdvaMed, suggested President Donald Trump's Buy America order in August for coronavirus supplies and drugs has problems.

"That's a very high hurdle to go over, to have every product, every part, every component made in the United States to qualify for 'Buy America,'" he said. "It's such a complicated supply chain."

He said the country's trade in all types of medical devices with the world is balanced, and domestic purchase requirements in the U.S. risk retaliation from other governments that could shut American firms out of those markets.

But others said the U.S. has seen its trade deficit in PPE grow rapidly in 2020, as domestic manufacturing was unable to keep up.

The group Public Citizen told USITC that the trade deficit in critical medical goods like PPE with China was $6.5 billion in the first seven months of 2020, nearly five times the 2019 figure.

Worldwide, it said the U.S. deficit in such products was $41 billion in the same time period, 48 percent higher than 2019. It said trade policies that promote offshoring are partly to blame for leaving the U.S. without the ability to quickly boost local production.

"Despite efforts to scale up domestic production, the reality is the U.S. became more dependent on imports during the crisis," said Lori Wallach, director of the group's Global Trade Watch center. "As we think forward, we need to figure out a way to have some domestic supply as clearly we cannot scale up under this paradigm."

One academic who specializes in manufacturing told the hearing there are not simple answers to why the U.S. would lack factory capacity to scale up quickly.

"It is inconclusive why manufacturing is not here," said Erica Fuchs, a professor of engineering and public policy at Carnegie Mellon University in Pittsburgh. "It's not that we can easily point and say, 'Oh, it's just tariffs, or it's just pricing manipulation.' This is a global economy with a lot going on."