The coronavirus pandemic has exposed the precarious state of U.S. pharmaceutical supply chains. Americans have finally begun to realize how much we rely on China — an increasingly hostile geopolitical competitor — for the essential medicines necessary to save lives. It is crucial that we fix this dangerous dependence.
Fortunately, we have the tool with which to do it: Puerto Rico, the beating heart of U.S. drug manufacturing. Rebuilding the island nation’s pharmaceutical manufacturing industry could be the best solution to this serious problem.
This worrisome situation should not be a shock. More than a year ago, Janet Woodcock, director of the Food and Drug Administration’s Center for Drug Evaluation and Research, testified about this concern before Congress. She specifically noted the increase of Chinese facilities producing active pharmaceutical ingredients (APIs) — “the actual drugs that are then formulated into tablets, capsules, injections, etc.” — over the past decade.
Woodcock said that the agency lacks the information needed to perform a gap analysis, necessary to determine how quickly the United States. could scale up production in case China stopped supplying APIs.
The U.S.-China Economic Security Review Commission’s 2019 annual report also warned that the United States is so “heavily dependent” that Beijing could “use U.S. dependence on China as an economic weapon and cut supplies of critical drugs” to harm America. This year’s report went even further, urging Congress to “consider establishing a Manhattan Project-like effort to ensure that the American public has access to safe and secure supplies of critical . . . drugs and medical equipment.”
It wasn’t always like this. America once was able to supply its own drug-related needs through Puerto Rico. Specially designed tax breaks passed in the 1970s turned the island into a top global producer of APIs and the nation’s de facto medical cabinet. Those tax breaks, however, were phased out starting in the 1990s, expiring fully in 2006, because of concerns that companies were not paying their share and that Puerto Ricans themselves did not benefit proportionally.
While well-intentioned, this move — combined with decades of budgetary mismanagement — helped produce a deep recession, massive job losses and poverty levels, and crushing debt.
Even now, San Juan is grappling with what is essentially a state-level bankruptcy and a slow-moving humanitarian crisis (made worse by Hurricane Maria, earthquake and, now, COVID-19).
Rebuilding Puerto Rico’s pharmaceutical industry could restart the island’s economy, “reshore” drug manufacturing and reduce America’s dangerous reliance on China for APIs.
As Florida’s Sen. Marco Rubio said in remarks at the National Defense University, how secure or prosperous can America be if we cannot carry out heavy industry, pharmaceutical manufacturing, and advanced technology? American policymakers must pursue policies that make our economy more productive by identifying the critical value of specific industrial sectors and spurring investment in them.
Rubio was right, and his suggestions could be applied in various ways.
First, the U.S. government should provide funding for initiatives, such as BioFabUSA, that focus on improving existing production processes. These could reduce the costs of drug production, incentivizing drug companies to reshore domestic manufacturing. In her testimony, FDA director Woodcock said that advanced manufacturing technologies could help U.S.-based pharmaceutical manufacturing regain its competitiveness with China.
Second, Congress could pass a modified version of the 1970s tax breaks, with stipulations that companies invest in Puerto Rico’s economy and development. One idea would be to create a special fund, financed by a percentage of taxes paid in Puerto Rico, to fund the island’s public infrastructure.
Third, lawmakers should revise laws and regulations that impede economic growth and development. The 1920 Jones Act, for example, mandates that any shipment of goods between U.S. ports must be carried on U.S.-flagged ships. This results in significantly increased costs, which is great for shipping companies but not for American citizens — especially those in Puerto Rico. It is time to change this outdated act.
The coronavirus pandemic is proving to be a litmus test for American government. Competing geopolitically in the 21st century — especially with potent rivals such as China — requires a rethinking of U.S. economic policy. Rebuilding Puerto Rico’s pharmaceutical industry is a great place to start.
Carlos Roa is the senior editor of the National Interest. He is the former associate editor of Horizons: Journal of International Relations and Sustainable Development.