COVID-19: Trump’s curbs on exports of medical gear put Americans and others at risk

Chad P. Bown (PIIE)

April 9, 2020 2:15 PM
Image credit: 
REUTERS/Eduardo Munoz

Hexuan Li provided outstanding data assistance, and William Melancon and Oliver Ward assisted with graphics.

At a time of frightening shortages of vital medical equipment to fight the COVID-19 pandemic, the Trump administration has taken bold, decisive action—to make the shortages worse. That is the likely consequence of President Donald Trump's decision to invoke the Defense Production Act (DPA) and restrict exports of respirators, surgical masks, and hospital gloves. He directed the Federal Emergency Management Agency (FEMA) to limit American exports of such personal protective equipment (PPE) to Canada, Mexico, and a host of other countries.

These steps put US medical workers at risk for a simple reason. The United States depends on imports for medical gear and their components. Last year, Americans bought more than five times the amount of the same respirators, masks, and gloves from foreign sources as the Trump administration is now refusing to sell abroad. US trading partners will not sit idly by in response.

Is retaliation really that likely? The record is hardly comforting. The Trump official directing the White House COVID-19 supply chain effort is Peter Navarro. Two years ago, on the eve of Trump slapping tariffs on tens of billions of dollars of foreign-produced steel and aluminum, as well as Chinese goods, Navarro famously predicted: "I don't believe any country will retaliate." It turns out almost every major US trading partner retaliated. Allies like Canada and the European Union immediately and forcefully struck back. Mexico, China, Russia, Turkey, and even India retaliated. The Trump administration had disregarded the warnings.

Today, foreign governments could also cut off American access to other PPE, such as face shields, goggles, and hospital gowns, as well as ventilators, catheters, X-ray equipment, or CT scanners. Also imperiled are foreign-produced inputs that American manufacturing plants require to make the hospital gear in the first place. Canadian Prime Minister Justin Trudeau has even warned the administration that its policy could provoke retaliation, noting that "the United States also receives essential supplies and products" from Canada.

The damage flowing from the Trump administration's provocative action can be seen in the recent example of 3M, a major manufacturer of surgical masks and disposable respirators. In addition to demanding 3M import medical gear into the United States from its plants in China, the administration pressed the company to stop exporting its US-based production to historical customers in Canada and Latin America. The new US export restrictions means FEMA will limit what companies like 3M can sell to hospitals in Canada and Mexico. But these are countries that American doctors and nurses also rely on for the medical headwear, sanitizer, face shields, and protective garments that are in short supply. All of these could be cut off as retaliation.

To paraphrase President Trump, trade wars in medical gear are easy to lose. The human costs could be devastating.

Restrictions won't work because the United States both exports and imports key medical gear

The Presidential Memorandum that accompanied Trump's announcement to invoke the Defense Production Act, as well as the subsequent rule that FEMA issued, indicated that five products would become subject to US export restrictions:

  1. N-95 filtering facepiece respirators;
  2. Other filtering facepiece respirators;
  3. Elastomeric, air-purifying respirators, and appropriate particulate filters/cartridges;
  4. PPE surgical masks; and
  5. PPE gloves or surgical gloves.

There is not a perfect fit between the regulatory definitions of these products and their classification in the formal US government trade statistics. The approach adopted here is to classify them into three "products": disposable respirators and surgical masks—the combination of (1), (2), and (4)—air-purifying respirators, and hospital gloves.[1]

The Trump administration's restrictions apply to an estimated $1.1 billion of US exports in 2019 (figure 1). That includes disposable respirators and surgical masks ($511 million), air-purifying respirators ($415 million), and hospital gloves ($150 million).

The first reason why Trump's policy is likely to cost Americans dearly is clearly apparent from the data: The United States imports more than five times the amount it exports of these same respirators, masks, and gloves. Cutting off US exports today risks trading partners responding in kind tomorrow. Americans bought an estimated $6.2 billion of PPE in 2019 (figure 1). In crude terms, the United States could lose access to $5.1 billion of these goods (on net).

If trading partners retaliate, they are unlikely to stop at respirators, masks, and gloves. In 2019, the United States imported $4.7 billion of other PPE currently in short supply—like hand sanitizer, face shields, protective garments, goggles, and headwear (see again figure 1). Hospitals also need ventilators, X-ray equipment, and thermometers, the likes of which made up another $12.6 billion of imports. Trump's export restrictions put US imports of all of that equipment at risk.

The export limits are just one more example of Trump's incoherent trade policy in the fight against COVID-19. It took until March 17 for the Trump administration to finally remove its trade war tariffs that had been penalizing US imports of surgical masks and disposable respirators from one of the world's largest suppliers. The fact that Trump had applied those tariffs in the first place was troubling. In 2018 and 2019, the medical community had warned the administration that bringing hospital supplies into its trade war would impair American preparedness for a pandemic.

The United States exports less than it imports of most medical gear needed to fight COVID-19

Cutting off PPE exports to Canada, Mexico, and others may backfire

Even before the DPA announcement, 3M, a major manufacturer of disposable respirators, issued a statement that the Trump administration had "requested that 3M cease exporting respirators that we currently manufacture in the United States to the Canadian and Latin American markets." In 2019, 34 percent of US exports of respirators and surgical masks went to Canada, and 30 percent went to Mexico (figure 2, panel a).

On April 7, Trump announced a deal in which 3M will be allowed to export a limited amount of its products provided it continues to import from its factories based in China: "Because of my actions, under the DPA, I can also announce today that we have reached an agreement—a very amicable agreement—with 3M for the delivery of an additional 55.5 million high-quality facemask—facemasks each month. So that we're going to be getting, over the next couple of months, 166.5 million masks for our frontline healthcare workers. So the 3M saga ends very happily."

Unfortunately, the 3M saga is unlikely to end happily if the result is a curb on US exports. The FEMA rule makes allowances for a limited amount of US exports to foreign customers but only for companies with pre-existing relationships, an exception that is contingent on at least 80 percent of the American manufacturer's production being destined for the United States. While perhaps tailored to fit 3M's historical production and exports, the rule is unlikely to accommodate other buyer-seller relationships without substantially crimping cross-border trade.

Furthermore, enforcement of the export restrictions—toward 3M and any other American manufacturer—remains completely at FEMA's discretion. "If FEMA determines that a shipment of covered materials falls within this exemption, such materials may be transferred out of the United States without further review" (emphasis added). The rule goes into effect for 120 days.

Cutting off Canadian and Mexican access to American-made masks and respirators would be disastrous—including for Americans. From Canada alone, the United States sourced 22 percent of its imports of hand sanitizer, worth $335 million, in 2019 (figure 2, panel b). Mexico is a major foreign supplier of protective garments for American doctors and nurses, sending $349 million (24 percent) of US imports in that category.

But it is not simply Canada and Mexico that could suspend American access to products in short supply, if Trump cuts them off first. Americans also currently benefit by accessing protective garments, goggles, and thermometers procured from China. The European Union sends CT scanners and X-ray equipment. Antagonizing any of these partners by withholding American-made medical gear in the face of the pandemic would put those products at risk.

The US trades medical gear with a wide array of countries

Finally, restricting access to finished medical equipment is not the only lever that countries have to retaliate. Trudeau also mentioned the thousands of Canadian medical professionals who cross the border to staff hospitals each day and treat American patients. But even if retaliation is limited to traded goods, American manufacturers cannot quickly scale up PPE production without Canadian inputs. For example, a paper mill in British Columbia generates the specialty pulp that US companies need to make hospital grade protective garments. If the Canadian government is forced to defend itself from Trump's policy, all it needs to do is impose export restrictions on pulp, cutting off American companies' ability to make PPE at all. Trump's policy would ensure that everyone loses.

Many poor countries would suffer with US export restrictions

Trump's export restrictions could also result in a humanitarian crisis. Many countries in Latin America are reliant on US exports of medical supplies for at least one of the three products subject to Trump's export restrictions (figure 3). Jamaica, for example, gets more than half of its total imports of respirators, masks, and gloves from the United States.

Many of these countries may not have any domestic plants to scale up their own local production. Being cut off from only one of these products could seriously reduce the effectiveness of their medical response to COVID-19.

US export restrictions on medical supplies leave Canada, Mexico, and other Latin American countries vulnerable

Finally, restrictions on Canada and Mexico would hurt those countries as well. Each sources more than one quarter of its total imports of respirators and masks from the United States.

The decline in American PPE imports thus far is tied to Trump's trade war

Reports that other trading partners, including the European Union, have already imposed export restrictions on PPE raise the question of whether others' clampdowns motivated Trump's action. Because many of those actions took place in March, the lag in the availability of trade data makes it too soon to determine their trade impact. Yet, the most recent data show US imports of respirators, masks, and gloves from non-Chinese sources increased by 7 percent in January and February 2020, compared to the same two months in 2019. While US imports from China of these three products declined by 21 percent during this period, that was partly the effect of Trump's trade war tariffs imposed under Section 301 of the Trade Act of 1974.[2]

One important consequence of Trump's trade war was a significant reduction of US imports from China of respirators, masks, and gloves (figure 4). After Trump's 15 percent tariffs went into effect in September 2019, US imports of these products from China declined sharply, and continued to fall through February 2020. Imports from China may not pick up until April; recall it took until March 17 for the US administration to remove its tariffs impeding American access to surgical masks and disposable respirators. (US imports from China of all other products had dropped off much earlier when hit with Trump's trade war tariffs beginning in 2018.)

US imports of masks, respirators, and gloves from China fell when Trump's Section 301 tariffs went into effect in 2019

US imports of respirators, masks, and gloves from the rest of the world continued on an upward trend through February 2020 (see again figure 4). But that trend may reverse eventually, if export restrictions continue to spread globally.

The unintended consequences of Trump's export restrictions

Trump's export restrictions will be scarring, with many potential unintended consequences.

The first will be the retaliatory export restrictions. American access to key medical equipment, as well as inputs to make supplies in the United States, will be put at risk.

Second, Trump's actions with 3M create a new concern that other countries may now feel pressure to nationalize the foreign manufacturing subsidiaries of American-based companies. This could further cut off supplies to the United States down the line. Trump's deal with 3M is apparently contingent on the company importing "166.5 million respirators over the next three months primarily from its manufacturing facility in China, starting in April." But 3M built those facilities also to supply the Chinese market. What if the outbreak resurfaces in China in May, and the Chinese people need some of those masks too? Will Trump share? If not, will this force Beijing to act against 3M's facilities in China?

Third, the US export restrictions may also influence where companies choose to invest, including their immediate allocation of resources intended to scale up PPE production to meet the huge increase in global demand. Trump's policy now reduces the relative attractiveness of the United States as a location for production. A company might choose to expand plant capacity in a market that allows it to both serve the local population and sell to customers in need around the world. With the global economy on the verge of collapse and many companies struggling dearly, policies that push their production and the jobs they provide away from the United States are in no one's best interest.

Imports and exports are a strength, not a strategic vulnerability

The shortages of hospital supplies in America require an immediate scaling up of domestic production capabilities. The administration must continue to facilitate that, as well as to coordinate the flow of medical gear from stockpiles and manufacturers to the medical facilities where it is needed the most. That is the most pressing problem. Areas of the United States are currently locked down, and the manufacturing sector remains only at the beginning stage of responding to government calls to increase production of ventilators and PPE.

Contrary to the Trump administration's stance on trade, the fact that the United States is both an exporter and importer of key medical equipment should be interpreted as a blessing, not a curse, during this pandemic. As the disease rolls across the global, shutting down markets in succession, access to imports means Americans can buy medical equipment from a country like China, which, right now at least, is able to maintain its production and exports. Indeed, the Trump administration has quietly recognized this through its Project Airbridge in which it is airlifting PPE supplies from China directly. Early in the crisis, when the tables were turned, it was the reverse. The Trump administration did the right thing the first week of February by sending emergency supplies to hard hit Wuhan province.

Yet, the administration is now doing the wrong thing by restricting PPE exports. The right action for the administration to tackle the problem is not to further isolate Americans from the rest of the world. If there are instances in which other export restrictions hurt American access to supplies, the administration should work with those countries to keep their trade flowing too. The failure to do so will only lead to more suffering.

The Trump administration's abuse of its discretionary application of trade policy has impeded US medical gear suppliers

If the Trump administration must monitor and limit exports, it should do so through a transparent and efficient system. Its current rule, unfortunately, provides FEMA tremendous discretion over which exports to ban or approve. This is likely to be problematic: The Trump administration has already demonstrated it has not been faithful to the facts when it exercises discretionary trade policy in the fight against COVID-19.

On March 27, Bloomberg reported that Trump's US Trade Representative had rejected, in a letter dated March 5, Purell-maker Gojo Industries' request to be excluded from the administration's Section 301 tariffs. To increase American production, Gojo needed a specially designed injection molded collar from China—still subject to one of Trump's tariffs—to dispense its hand sanitizer. It was only after the denial surfaced in the Bloomberg report that, under pressure, the USTR reversed its decision on April 3.

Similarly, the Wall Street Journal reported that General Motors had sent a letter to Trump's USTR on March 31, pleading that the administration drop its China tariffs on parts needed to make ventilators. Trump had also invoked the DPA on March 27 demanding the American automaker start mass-producing ventilators, a product GM had not made before, berating the company with allegations that "GM was wasting time. Today's action will help ensure the quick production of ventilators that will save American lives." The Trump administration knew those tariffs on gaskets, seals, and other specialized ventilator parts remained in effect, since they had imposed them in September 2018. Keeping the tariffs in place during the pandemic turns out to be an equally important waste of critical time and resources for companies like GM that are attempting to fight COVID-19.

The Bloomberg and Wall Street Journal examples are notable because each arrived long after the Trump administration's USTR penned a letter, published in the Wall Street Journal on March 20, claiming that "the US Trade Representative granted immediate exclusions from the Section 301 tariffs for all critical medical products weeks ago."

But all of the necessary tariff exclusions had clearly not been granted "weeks ago." Inputs are themselves a "critical medical product." Without gaskets and seals, GM can't make a ventilator. Without the molded collar, Gojo can't dispense hand sanitizer.

If Trump pursues one more destructive trade policy—this time by shutting off US exports—American doctors and nurses may lose access to Mexican-made protective garments. An American manufacturer of hospital supplies could lose access to Canadian-milled pulp. The Trump administration must allow companies to export, because that is what ensures America's access to imports. And imports are critical to America's fight against the ravages of this horrible disease.

Appendix: Products used in the COVID-19 response study
Product group Product HTS (imports) Schedule B (exports) Section 301 tariff (percent) Exclusion information
Defense Production Act Air-purifying respirators 9020.00.6000 9020.00.8000 0 NA
Defense Production Act Air-purifying respirators 9020.00.9000 9020.00.8000 0 NA
Defense Production Act Hospital gloves 3926.20.1010 3926.20.1010 0 NA
Defense Production Act Hospital gloves 4015.11.0110 4015.11.0100 0 NA
Defense Production Act Hospital gloves 4015.11.0150 4015.11.0100 0 NA
Defense Production Act Hospital gloves 4015.19.0510 4015.19.0002 7.5 (list 4A) Excluded or partially excluded (Mar 2020)
Defense Production Act Hospital gloves 4015.19.0550 4015.19.0002 7.5 (list 4A) Excluded or partially excluded (Mar 2020)
Defense Production Act Hospital gloves 4015.19.1010 4015.19.0002 25 (list 3) Excluded or partially excluded (Mar 2020)
Defense Production Act Respirators and surgical masks 6307.90.9889 6307.90.9995 7.5 (list 4A) Excluded or partially excluded (Mar 2020)
Other personal protective equipment Face shields 3926.90.9910 3926.90.9910 7.5 (list 4A) Excluded or partially excluded (Mar 2020)
Other personal protective equipment Goggles and visors 9004.90.0000 9004.90.0000 7.5 (list 4A) Excluded or partially excluded (Mar 2020)
Other personal protective equipment Hand sanitizers 3402.20.5100 3402.20.5100 25 (list 3) Not excluded
Other personal protective equipment Hand sanitizers 3808.94.1000 3808.94.0000 25 (list 3) Not excluded
Other personal protective equipment Hand sanitizers 3808.94.5000 3808.94.0000 25 (list 3) Not excluded
Other personal protective equipment Hand sanitizers 3824.99.9295 for 2017, and 3824.99.9297 for 2018-2019 3824.99.9270 25 (list 3) Not excluded
Other personal protective equipment Medical and other headwear 6505.00.0100 6505.00.0100 7.5 (list 4A) Not excluded
Other personal protective equipment Medical and other headwear 6505.00.8015 6505.00.8015 25 (list 3) Excluded or partially excluded (Feb 2020)
Other personal protective equipment Medical and other headwear 6506.10.3075 6506.10.0090 7.5 (list 4A) Not excluded
Other personal protective equipment Protective garments 4015.90.0050 4015.90.0000 25 (list 3) Not excluded
Other personal protective equipment Protective garments 6210.10.5000 6210.10.0000 7.5 (list 4A) Excluded or partially excluded (Mar 2020)
Other personal protective equipment Protective garments 6307.90.6090 6307.90.6500 7.5 (list 4A) Excluded or partially excluded (Mar 2020)
Other personal protective equipment Protective garments 6307.90.6800 6307.90.6500 7.5 (list 4A) Excluded or partially excluded (Mar 2020)
Other personal protective equipment Protective garments 6307.90.7200 6307.90.6500 7.5 (list 4A) Not excluded
Other personal protective equipment Protective garments 6307.90.8910 6307.90.8910 0 NA
Other medical equipment Bougies, catheters, drains and sondes, and parts 9018.39.0020 9018.39.0030 0 NA
Other medical equipment Bougies, catheters, drains and sondes, and parts 9018.39.0040 9018.39.0030 0 NA
Other medical equipment Bougies, catheters, drains and sondes, and parts 9018.39.0050 9018.39.0030 0 NA
Other medical equipment CT systems 9022.12.0000 9022.12.0000 25 (list 1) Excluded or partially excluded (Oct 2019)
Other medical equipment Patient Monitors & Pulse oximeters 9018.19.5500 9018.19.5500 25 (list 1) Not excluded
Other medical equipment Thermometers 9025.19.8040 9025.19.8040 25 (list 2) Excluded or partially excluded (Jul 2019; Oct 2019)
Other medical equipment Thermometers 9025.19.8080 9025.19.8080 25 (list 2) Excluded or partially excluded (Jul 2019; Oct 2019)
Other medical equipment Ultrasound systems 9018.12.0000 9018.12.0000 25 (list 1) Excluded or partially excluded (Jul 2019; Sep 2019)
Other medical equipment Ventilators & oxygen mask and nebulizer & nasal cannula & CPAP machines 9019.20.0000 9019.20.0000 0 NA
Other medical equipment X ray 9022.14.0000 9022.14.0000 25 (list 1) Excluded or partially excluded (Dec 2018)
HTS = Harmonized Tariff Schedule; NA = not applicable; MFN = most favored nation
Notes: Products on List 1 faced a 25 percent tariff starting July 6, 2018. Products on List 2 faced a 25 percent tariff starting August 23, 2018. Products on List 3 faced a 10 percent tariff starting September 24, 2018 that was increased to 25 percent on June 15, 2019. Products on List 4A faced a 15 percent tariff on September 1, 2019 that was cut to 7.5 percent on February 14, 2020. Product exclusions are temporary and partial in that they do not cover all subproducts within an HTS-10 (or HTS-08) code.
Source: Compiled by the author with data available from the US Harmonized Tariff Schedule as well as US Trade Representative announcements of Section 301 tariffs and exclusions.

ADDENDUM

On April 17, 2020, after this blog post was published, the Trump administration issued a revised rule for "Prioritization and Allocation of Certain Scarce or Threatened Health and Medical Resources for Domestic Use; Exemptions," indicating some exemptions from its export restrictions of April 7, 2020, including "Shipments for Which the Final Destination is Canada or Mexico."

With Canada and Mexico exempted, the Trump administration's restrictions apply to an estimated $530 million of US exports in 2019. Last year, Americans bought more than eleven times the amount of the same respirators, masks, and gloves from foreign sources ($6.2 billion) as the Trump administration is now refusing to sell abroad.

Notes

1. The appendix table details the 10-digit Schedule B (US exports) and Harmonized Tariff Schedule (US imports) used to make up each category. Disposable respirators and surgical masks are combined out of necessity as they fall into the same Schedule B code and same Harmonized Tariff Schedule code, and it is thus impossible to distinguish between them. Finally, the CDC provides a useful explanation of distinctions between disposal respirators and air-purifying respirators.

2. In a separate analysis utilizing Chinese export data for January and February 2020, Chinese exports to the United States of broader categories of medical gear fell by 17 percent.

Data Disclosure: 

The data underlying this analysis are available here.

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