Why Mandating That Essential Drug Production Remain In The US Is A Bad Idea

Sources in the US government say that President Trump will issue an Executive Order that will require that certain essential drugs be produced in the US. The order, which is a response to shortages incurred in the Coronavirus pandemic, could come as soon as today reports CNBC. Unfortunately, the move is likely to be counterproductive.

The text of the Order has not yet been released but White House trade advisor Peter Navarro has pushed a plan that would streamline approvals for American-made products and impose similar FDA restrictions on US facilities as on those abroad. Navarro’s proposal would also encourage government agencies to buy only American-made products.

The Executive Order, which will probably be popular, is reminiscent of a famous quote by H. L. Mencken: “There is always a well-known solution to every human problem—neat, plausible, and wrong.”

In this case, the fallacy is that America’s medical supply problem can be fixed by mandating that American companies produce the items at home. The idea of “just make everything here” is appealing in its simplicity but, in reality, is fraught with problems.

Aside from the fact that moving production to the US would take at least a year, one of the most obvious problems is that the United States has a finite industrial capacity and labor pool. If we move essential pharmaceutical production to the US, that means that we can’t make something else.

Scott Lincicome, a trade lawyer at the Cato Institute, notes that such a policy would have many other hidden problems as well, comparing the idea to the Jones Act on a recent Jonah Goldberg podcast. The Jones Act is a shipping law that requires that all goods shipped between US ports be shipped on vessels that are flagged under the US as well as being built, owned, and crewed by Americans. In theory, it’s a sensible idea but in practice, it has led to higher costs, cronyism, inefficiency, and decreased national security, Lincicome wrote in 2015.

Lincicome recently penned a critique of the idea of “repatriating” supply lines that appeared in National Review. In it, he addressed the question of critical medical supplies, pointing out that the claim that the majority of America’s medical supplies come from China is “essentially baseless.”

Per Lincicome’s investigations, China’s stranglehold on American medical supplies is greatly exaggerated. For example, even though China produces 30 percent of imported medical equipment, it accounts for only nine percent of medical items used in the US because American companies already produce more than 70 percent of items consumed here.

Further, only 13 percent of factories that produce active pharmaceutical ingredients (APIs) are in China compared with 28 percent in the US. Most of the remainder are in the EU, Canada, or India. For essential medicine APIs, 21 percent are already produced in the US versus only 15 percent from China.

If the threat of China to our medical supplies and pharmaceuticals is overblown, the threat of protectionism is not. Protectionist policies have a history of backfiring and weakening the industries they were supposed to protect while stifling innovation at the same time. President Trump’s own steel and aluminum tariffs are one recent example of such a failure.

Rather than inspiring companies to become more innovative and competitive, protectionism does the opposite. Companies spend more time and energy lobbying to protect their fiefdom than in expanding their core business. Often higher costs are associated with protectionism as well.

There are better options than government edicts moving production to the US. For example, when the pandemic is over and prices of medical supplies drop, the government should replenish strategic stockpiles. Both the Obama and Trump Administrations failed to restock N95 mask supplies that were used in the 2009 flu outbreak. Proper planning would make a big difference in future pandemics. This year the Trump Administration wasted months and did not order necessary supplies until mid-March, weeks after the pandemic was well underway.

As I’ve pointed out before, another good solution is to provide companies with an alternative to China. Or better yet, with several. The Trans Pacific Partnership was supposed to be an counterweight to China but the president canceled the agreement as one of his first acts.

If we had free trade agreements with countries such as Australia, Japan, Vietnam, and Malaysia, it would diminish China’s influence in the region as well as providing an incentive for companies to move operations out of China. The pandemic should make the risks of doing business with an untrustworthy authoritarian regime obvious but businesses still need viable alternatives.

There are better solutions to the problems in medical supplies than to decree a top-down order for companies to realign their supply chains and unilaterally force them to move production to the US, regardless of the costs. The idea that government knows best and that businesses should just fall into line and do as they are told is the sort of thing that Republicans and conservatives used to oppose.

Originally published on The Resurgent

Tucker Carlson: Elizabeth Warren ‘Sounds Like Trump At His Best’

No, that’s not a typo. Proving once again that Fox News is not a monolithic hotbed of conservatism, Tucker Carlson heaped praise upon none other than Democratic presidential candidate Elizabeth Warren on his show last night. A few months ago, I pointed out that the Fox host sounded a lot like Elizabeth Warren and Alexandria Ocasio-Cortez. Now, he is openly praising Warren’s economic policy.

Carlson began by quoting a long, anti-corporate diatribe by Warren in which the Massachusetts liberal said, “Giant American corporations… wave the flag — but they have no loyalty or allegiance to America.”

“These American companies show only one real loyalty,” Warren said, “to the short-term interests of their shareholders, a third of whom are foreign investors. If they can close up an American factory and ship jobs overseas to save a nickel, that’s exactly what they will do — abandoning loyal American workers and hollowing out American cities along the way. Politicians love to say they care about American jobs.”

“But for decades, those same politicians have cited ‘free market principles’ and refused to intervene in markets on behalf of American workers,” Warren continued. “And of course, they ignore those same supposed principles and intervene regularly to protect the interests of multinational corporations and international capital. The result? Millions of good jobs lost overseas and a generation of stagnant wages, growing inequality, and sluggish economic growth.”

“What part of that statement did you disagree with?” Carlson then asked. “Was there a single word that seemed wrong? Probably not.”

“Many of Warren’s policy prescriptions make obvious sense,” Carlson added before gushing, “She sounds like Donald Trump at his best.”

I’m not sure whether that is more of an indictment of Trump or Warren.

Despite his embrace of Warren's economic policies, Carlson did stop short of endorsing her completely. He decried her “race hustling, gun grabbing, abortion extremist” positions and then said, “That is exactly the problem, not just with Warren, but with American politics.” In Carlson’s world, both Democrats and Republicans are “resolutely libertarian” while Democrats “nod in total agreement” because they are “on the same page” with respect to the defense of free markets and liberal social issues, such as the legalization of marijuana.

Carlson embraces President Trump’s “innovative new way to protect American workers from the ever-cascading tidal wave of cheap third-world labor flooding this country,” his plan to tax American consumers and businesses in hopes that the economic pain will trickle across the border to Mexico where it would, ironically, probably spur more economic refugees to cross the border in search of new opportunities in the United States. He also fails to note reports that Donald Trump supports legislation that would allow the states to decriminalize marijuana.

What Carlson admits that he wants is not a small government, conservative policy but big government economic policy paired with conservative social policies. In his own words, Carlson wants candidates who are “nationalist on economics, fairly traditional on the social issues.”

“Would you vote for someone like that?” Carlson asks. “My gosh. Of course. Who wouldn’t? That candidate would be elected in a landslide. Every single time.”

The Fox host asks rhetorically, “What if the Republican leadership here in Washington had bothered to learn the lessons of the 2016 election? What if they’d understood, and embraced, the economic nationalism that was at the heart of Donald Trump’s presidential campaign?”

Yet Carlson overlooks the fact that Donald Trump did not win in a landslide in 2016, losing the popular vote and winning the Electoral College by a margin of only 50,000 votes over a handful of states. He also seems to forget the drubbing that Trumponomics took in the 2018 midterms. Donald Trump’s economic policies have propelled him to a 42 percent average approval rating and, since the onset of the trade war, President Trump is even underwater in many typically red states. Polling shows that Americans are opposed President Trump’s tariff war by about a two-to-one margin.

Carlson is correct that “almost nobody speaks for the majority of voters,” but not in the way that he means. Where the parties come together is on spending more and on expanding government influence to control a larger share of American life. They just don’t agree on what to spend on or how they want to exercise that control. Voters need a candidate and party that will leave them alone to live their lives without government interference.

I’d vote for that.

Originally published on The Resurgent

Trump Is Committed To Higher Steel Prices

President Trump seems determined to raise the price of steel and aluminum. Mr. Trump’s efforts, which would also raise the price of products made from the restricted metals, began in March with threats to place import taxes of 25 and 15 percent on the two metals. Then the Trump Administration began to hand out exemptions to steel-producing allies. Now, however, a White House advisor says that even untaxed imports will be limited.

“The guiding principle of this administration, from the president down to his team, is that any country or entity like the European Union, which is exempt from the tariffs, will have a quota and other restrictions,” White House trade advisor Peter Navarro told steel executives at the American Iron and Steel Institute and the Steel Manufacturers Association. In the meeting, which was reported in Politico, Navarro also said that the protectionist measures “are necessary to defend the aluminum and steel industries from imports in defense of our national security.”

The steelmakers at the meeting heartily approved of Navarro’s comments even though they had hoped for the high tariffs on the imports that compete with their companies. John Ferriola, CEO of Nucor, was disappointed that the Trump Administration had extended its deadline for Canada, Mexico and the European Union to reach deals to avoid tariffs by 30 days.

“Frankly, we're disappointed,” said Ferriola. “We were hoping for the actions to be taken yesterday.”

While fewer countries might be subject to direct tariffs under the new Trump policy direction, the quotas, justified under Section 232 of the Trade Expansion Act of 1962, will probably still please Ferriola and the other steel executives. Both import taxes and quotas on imports have the effect of making imported steel cost more, which is good for American steel companies, but bad for pretty much everyone else.

It is obvious how tariffs raise the price of steel and other imported goods. The American buyers of steel products will pay the price charged by the seller as well as a 25 percent tax. The effect will be that imported steel will cost 25 percent more than before.

The effect of import quotas will not be as drastic, but will still benefit American steel and aluminum producers. The Commerce Department says that total US steel demand is about 105 million metric tons while annual US steel production is about 84 million tons. US steel manufacturers are running at about 72 percent capacity. In theory, if the US steel mills ran at full capacity they could produce enough steel to meet domestic demand. This seems to be the Trump Administration’s target.

The problem for consumers of steel is that increasing capacity will also increase costs. Currently the US imports about a third of its annual steel demand. If imports are restricted, the reduction in the steel supply would mean that the cost of steel will increase. As American companies ramp up production to meet demand, steel prices will eventually stabilize at a higher price.

Higher steel prices will please the steel companies and President Trump, but purchasers of steel and steel products will not be happy. The higher steel prices will translate into higher costs for buildings, cars, appliances and mechanical equipment. The protectionist policy will cost American consumers and businesses money even before our trade partners retaliate.

Originally published on The Resurgent

Reince Priebus says America should 'make everything'

From time to time, people in power will make a statement that is economically illiterate. Occasionally, that person will be a Republican. Reince Priebus was that person when he appeared on the Hugh Hewitt radio show earlier this week.

On Wednesday, Priebus, who is the incoming White House Chief of Staff for President-elect Donald Trump, told Hewitt, “We can make everything here, or our goal should be to try to make everything we can in the United States so that the money gets put in the pockets of Americans.”

On the surface, the statement is innocuous. It seems to be a simple statement in support of American business and manufacturing. After all, who wouldn’t want American manufacturers to produce everything domestically? It would eliminate the need for imports and erase the trade deficit.

The problem is that Priebus doesn’t understand competitive advantage. Competitive advantage allows companies or countries to produce a good or service that is preferable to that of its competitors. If a country can produce a product at a lower cost, a higher quality or both, then it will hold an advantage over its competitors. It would be impossible for a country to hold a competitive advantage on every product and service, just as it is impossible for an individual to excel at everything.

If Priebus fulfilled his dream of America producing everything, the result would be that many of these products would be inferior and/or more expensive than competing products made elsewhere. American products are often expensive for several reasons. American labor is expensive thanks to unions, regulations like the Affordable Care Act and the high American standard of living. The cost of real estate is high in many manufacturing areas of the US. The US corporate tax rate is the highest in the free world.

If every product was made in America, the economy and market would not be efficient. Some products would be more expensive or lower quality than products that could be purchased elsewhere. Either heavy restrictions would have to be placed on the free market to keep people from buying imported goods or inefficient American producers would be forced out of business. American consumers would be forced to pay more or buy shoddy products in many cases. Alternatively, the goods might be produced at lower costs by machines than by American workers.

For an example of why Priebus’s utopian dream wouldn’t work, look no further than Donald Trump’s deal with Carrier. Trump convinced the company not to move 800 jobs to Mexico, only to find that the company was planning to automate its Indiana plant and that many jobs would be lost anyway.

Mexico has a competitive advantage in building the heating and air conditioning units that Carrier produced in Indiana. The company said that it expected to save $65 million per year by moving the plant to Mexico. When a combination of political pressure and a $700,000 annual tax credit persuaded the company not to move, it didn’t change the economic advantage that Mexico held for the low-tech product. Automation and lower labor costs levelled the playing field.

In contrast, Carrier’s parent company also owns several aerospace companies, including Pratt & Whitney and Sikorsky. These are high tech manufacturing companies that are profitable and adding jobs, even with plants in Connecticut, one of the most expensive states in the union. America holds a competitive advantage in aerospace manufacturing, partly due to a highly skilled labor force.

What Priebus is actually calling for is less economic choice. To allow American companies to make everything without going broke, it would require the United States to isolate itself from competing manufacturers. That is essentially the purpose of the protective tariffs proposed by Donald Trump and Bernie Sanders.

Priebus’s comment is a disturbing confirmation that Republicans are rejecting the free market in exchange for protectionism and isolationism. After eight years of stagnant growth and wages under President Obama, the desire to revitalize the country is understandable, but shutting America off from the world is not the answer.

A better answer would be regulatory and tax reform to make American companies more competitive. The government should also allow companies to pursue niches where they have an advantage as well as to cut costs where they aren’t competitive. As the legendary economist Milton Friedman once said, “Underlying most arguments against the free market is a lack of belief in freedom itself.”

Originally published on The Resurgent

Are the lessons of Pearl Harbor forgotten?

As America remembers the attack on Pearl Harbor that occurred 75 years ago today, I have to wonder how well we remember the lessons of that day of infamy. Everyone remembers the Japanese sneak attack that Sunday morning, but not everyone remembers the events that led to war.

Two of the factors that resulted in the destruction of the American Pacific fleet are rearing their heads in modern American policy. First was American military weakness that was not widely recognized at the time. Second was an attitude of isolationism that was brought on by the economic malaise of the Great Depression. There are parallels to both in 2016.

After WWI, the “war to end all wars,” the American military was placed on the back burner. Particularly after the onset of the Great Depression, the US military was placed behind FDR’s public works projects in importance. While the federal government built national parks and post offices, the army and navy languished.

As Japan and Germany built up their armed forces in the 1930s, the New Deal gave them a head start of almost a decade. At the beginning of WWII, the US Army was smaller than the army of Portugal at about 180,000 men. The air force, which was then part of the army, had only a few hundred planes, many of which were already obsolescent. In 1941, the US Navy had only six aircraft carriers to split between the Atlantic and Pacific Oceans. They faced a fleet of 10 new Japanese carriers.

The situation is analogous to today’s American military. The Heritage Foundation recently found that the US armed forces were understrength and weak after years of protracted wars and budget cuts. Modernization has been sacrificed to maintain current strength while potential adversaries like Russia and China have both expanded and modernized their forces.

Isolationism grew from the Great Depression as well, but had roots that ran deeper. After WWI, Congress rejected American membership in the League of Nations, a precursor to the United Nations. While the US actively intervened in Central America, Americans did not want to involve themselves in European or Asian politics. Protectionist policies like the Smoot-Hawley tariff served to both further isolate America from the world while at the same time preventing economic recovery.

“America first,” a slogan heard on both sides of the political aisle this year, was also a popular phrase in the 1930s. When President Roosevelt felt it necessary to intervene against Japanese aggression in China and Nazi aggression in Europe, he could not do so openly due to opposition at home. Father Charles Coughlin and aviator Charles Lindbergh were among the celebrities who whipped up isolationist sentiment against American involvement overseas.

Today, political figures on both sides of the aisle have argued against American involvement against aggressive and expansionist governments. It was Republican opposition that derailed President Obama’s plan to intervene against Assad in Syria, a failure that led to the protracted civil war and more instability in the region. Donald Trump removed the plank from the Republican platform that called for lethal aid for Ukraine in its fight against insurgents backed by Vladimir Putin. China is building islands in the South China Sea that will become military bases while the United States does nothing.

Pearl Harbor was the result of a perfect storm of military weakness and inward-looking policies that allowed dictatorships to flourish. When tyrants like Hitler thought that no one dared oppose them, they decided to expand their borders. The desire to avoid war at all costs while failing to maintain military readiness eventually led to a war that cost millions of lives. Tragically, these lessons of Pearl Harbor appear to have been forgotten.  

Originally published on The Resurgent