BEIJING, Sep 10, 2020, SCMP. In recent weeks, as the United States has ramped up its attacks on Chinese tech firms and the threat of financial decoupling has grown, government advisers in Beijing have begun debating a so-called nuclear option: cutting US access to medicines, South China Morning Post reported.
From pills for pain relief to HIV medications, the US is heavily reliant on imported medicines from China thanks to large-scale offshoring in the 1990s.
While weaponising drug exports and precursors does not have official backing, its discussion has provoked concern in both Washington and Beijing.
The idea has been recently floated by the likes of Li Daokui, a prominent Chinese academic and government adviser, who told local media that limiting access to medicines could be legitimate retaliation for US export controls on American technology and software.
In a statement to the South China Morning Post, Li said he was making a point that the US and China are mutually dependent and it is impossible for the two countries to decouple. But he also suggested in 2019 that China could curb its exports of antibiotics to the US as a trade war retaliation tool.
Other experts have suggested the idea is not only immoral, but it could also backfire.
“This suggestion doesn’t make much sense. It will fail to help China retaliate against the US, it will also ratchet up efforts to further block China’s hi-tech companies,” said Shi Yinhong, an international relations professor at China’s Renmin University and an adviser to the State Council.
Medical supply chain security has emerged as a key theme in the upcoming American presidential election, with both US President Donald Trump and Democratic nominee Joe Biden vowing to address the issue after the coronavirus pandemic exposed vulnerabilities in the nation’s pharmaceutical and medical device supply.
While US pharmaceutical firms still maintain research facilities at home, mass manufacturing of cheap generic drugs has all but disappeared.
Many of the key ingredients for antibiotics are no longer produced in the country, with the last American-based producer of penicillin ingredients shutting in 2004.
Last year, about 40 per cent of the antibiotics imported to the US came from China, including 90 per cent of chloramphenicol, 93 per cent of tetracyclines and 52 per cent of penicillin, according to data from the US International Trade Commission.
Reliance on China for the supply of some basic medicines is a vulnerability for the US and an advantage to Beijing, according to Zhang Weiwei, a professor of international relations at Fudan University, who is known for his nationalist views.
He said in a speech earlier this year that “all hospitals in the US would have to close without China’s supplies”, given its overdependence on Chinese antibiotics.
China is the world’s largest producer of active pharmaceutical ingredients (APIs), the precursor components used in generic drugs. More than 11,000 manufacturers pump out the pharmaceuticals, with India, the US and Japan the top three export destinations.
The US Food and Drug Administration (FDA) does not have specific information about the volume of APIs produced in China. But in a letter to the US Food and Drug Administration in August last year, Senate finance committee chairman Chuck Grassley estimated about 80 per of those used in the US were produced in China and India.
India’s generic drug industry, which the FDA says supplies 40 per cent of US generic drugs, is also heavily reliant on China. It imports up to 75 per cent of its APIs from its giant neighbour, but only because they are cheaper, according to a report from Indian publication eHealth Online.
Producing the precursors in China, the world’s largest electricity producer, is more cost effective, the report said.
China’s dominance in medicine production extends to antibiotics too, especially penicillin, tetracycline, and chloramphenicol; and it is the world’s largest producer and exporter of vitamins.
Last year, China exported US$9.8 billion in medical supplies and US$7.4 billion in organic chemicals – a figure that includes active pharmaceutical ingredients and antibiotics – to the US, according to data from China Customs.
If it were to adopt the nuclear option of withholding medicine supplies, it would be nearly impossible for the US to reshore manufacturing or find alternative supplies in the short term, said Shi.
But he added Chinese companies would suffer, too, as many rely heavily on exports to the US, and these companies “will die” if they lose American clients.
“If China cuts off the drug supply, it would trigger more resentment in the US,” Shi said. “If both of the countries opt for a tit-for-tat approach, the US will always have many more cards to play than China.”
Any curb on medical exports would almost certainly result in foreign pharmaceutical companies either sharply reducing or completely relocating their production from China, said Zhao Daojiong, a professor at the School of International Studies, Peking University.
“The most important reason for arguing against tampering with market access to medicines … is that it is just such an utterly self-defeating proposition,” he said in a recent opinion piece for the Post.
“Unprovoked and politically-motivated decoupling of the medicinal industry only hurts the party that initiates it, as it will mean a loss of foreign materials and know-how that have already been delivered to the door of a society.”
The US has long been aware of its over-dependence on China for medicines and last year the US-China Economic and Security Review Commission flagged it as a “security risk”.
The problem was highlighted in February when factories in China closed due to the coronavirus pandemic. US media reported Americans struggled to find generic drugs at local pharmacies. There is still a national shortage of 118 drugs, according to the FDA.
In July, senators Marco Rubio and Elizabeth Warren introduced a bipartisan bill, the US Pharmaceutical Supply Chain Review Act, ordering a study into US reliance on overseas pharmaceutical supply, warning it could “stymie” domestic capacity and “exacerbate” overdependence on other countries.
Rachna Shah, an associate professor in the supply chain and operations department at the University of Minnesota, said US firms outsourced API manufacturing for two main reasons: ingredients were cheaper and environmental regulations less stringent.
“If the US decides that China is going to play hardball or use the nuclear option, I think [the government] could politically switch to bringing back manufacturing,” she said. “It will take some time, but in the long term, we will be OK, because the US has the capital and R&D capability.”
US dependence on China is based primarily on raw materials, meaning the APIs, Shah said. India is a very large manufacturer of finished medications, but it still needs APIs and inactive ingredients. China does all of these things to produce finished products, from packaging manufacture, to making APIs and inactive ingredients.
The US must develop alternative capabilities for all three if it really wants to reduce its reliance on China, she said.
Inactive ingredients, because they are the easiest to manufacture, could be developed in Malaysia, Indonesia and Vietnam. But the high production costs and strict environmental rules might not make it worth manufacturing APIs in the US, Shah said.
“These three things would require a little bit of time, but because many of these were patented in the US, it should not be very long,” Shah said.