The U.S. government must gradually disassociate itself from the Chinese side through three major initiatives: establishing its own industrial chain, not purchasing Chinese drugs and rare earths, and taking tariff increases. Rare earths production information map.
On February 17, U.S. Republican Senator Tom Cotton (R-UT) released a report saying that the U.S. is heavily dependent on Chinese production of drugs and rare earths, which are two major strategic materials. The U.S. government must gradually disassociate itself from China by establishing its own industrial chain, not purchasing Chinese drugs and other medical supplies and rare earths, and taking three major initiatives such as imposing tariffs.
The 84-page report, titled “Beat China: Targeted Decoupling and the Economic Long War,” has been described by the U.S. media outlet Vox as “a long-term competition between the United States and China. called “the most detailed strategy for long-term U.S.-China competition” and “reflects a growing bipartisan consensus on the future of U.S.-China economic relations, truly putting into writing the view coming out of Washington that U.S.-China relations are a zero-sum game.”
Cotton, who chaired a subcommittee on economic policy in the last Congress, is familiar with the most sensitive messages in the U.S.-China economic relationship. In the preface to the report, Cotton says that the U.S.-China economy is far more integrated than the economic relationship between the free world and the Soviet Union during the Cold War, and that it is this relationship and U.S. freedoms that the Chinese Communist Party hopes to use to replace the United States and reshape the global order according to its own ugly ideology without a major war. Decades later, when Americans wake up to find the United States poorer, weaker and more disadvantaged, it will be too late.
The cost of targeted decoupling from China pales in comparison to the cost of passivity,” the paper said, “and we cannot stand by and watch the United States become increasingly decrepit, ceding its position to a totalitarian state committed to bending the world to its will. Americans must act decisively to avoid this fate.”
The report is divided into four parts: first, the current state of U.S.-China economic relations, second, targeted economic decoupling from China, third, how to reduce the costs of decoupling, and fourth, the role of the federal government.
Decoupling from China’s Rare Earth Supply Chain
In June 2019, the report said, the U.S. Department of Commerce released a disturbing report that found that China is a major or dominant supplier of numerous minerals and that the United States is heavily dependent on China for key minerals. For example, in 2017, all U.S. imports of scandium (used in lasers and solid oxide fuel cells), and 74 percent of U.S. bismuth (used in pharmaceuticals and semiconductor manufacturing), came from China, an alarming level of dependence because the United States does not have the capacity to process these minerals. The report found that of the 35 minerals it examined, the U.S. is completely dependent on imports for 14 of them. 16 of the 35 materials “have caused some significant weapons systems production delays for the Department of Defense” because they are not available in a timely manner.
Of particular concern is the U.S. dependence on Chinese rare earths, a mineral containing 17 elements that are necessary to make many commercial and military electronics, from touch screens for iPhones to U.S. Air Force missile guidance systems. Despite its name, the mineral is actually quite common in nature. Yet due to the difficult, expensive and dangerous process of mining and processing, it can only be mined and processed in a few places around the world.
Through the 1980s, the United States was the world’s largest producer of rare earths. However, Chinese communist strategic planners recognized the importance of rare earths to modern technology and have methodically cornered the market in the decades since. Today, China dominates the global rare earths industry, supplying about 80% of U.S. imports from 2016 to 2019. In addition to rare earth raw materials, China also has at least 85 percent of the world’s rare earth processing capacity, converting extracted rare earth elements into useful raw materials.
This dependence is dangerous because the Chinese Communist Party has used rare earths as a weapon against its adversaries. in 2010, China halted rare earth exports to Japan because of a dispute over a trawler, causing rare earth prices to soar. In the most recent trade dispute, the Chinese Communist Party has threatened to do the same to the United States.
While the U.S. is trying to break away from its dependence on Chinese rare earth mining, domestic production rose 44 percent to 26,000 metric tons in 2019. But it won’t be of much use if China still dominates rare earth processing, and the Mountain Pass mine, the only rare earth mine in the U.S., still mines rare earths and ships them to China for processing. But it plans to start local processing in 2022.
China is the largest producer of permanent magnets, accounting for more than 90 percent of the global supply, and there are no domestic U.S. companies producing these magnets. China has dominated this particular key application of rare earths, so much so that the Pentagon has had to repeatedly waive its ban on using Chinese-made components in U.S. weapons in order to install rare earth magnets in F-35 fighter jets. The Pentagon’s supply of neodymium magnets is so unstable that the Pentagon sought to establish a rotating six-month inventory in 2019 and recently provided a grant for a rare earth magnet supply chain study.
The U.S. needs to end its dependence on China to protect its commercial and military production from embargoes and other supply shocks.
The U.S. should seek to diversify its foreign sources of rare earths, build its own rare earth industry, and reduce China’s dominance of the rare earths market by reducing the dependence of U.S. allies and partners on Chinese rare earth elements so that they can scale up quickly in the event of a crisis.
To further this goal, the U.S. government should require that all federal government purchases, by a specified date, not contain rare earths and key minerals mined or processed in China. This would provide incentives for rare earth manufacturers to move their supply chains out of China. The government could provide grants for domestic rare earth projects and impose additional taxes on the products of Chinese rare earth companies. The U.S. government should also create a national strategic reserve of rare earth inputs and restrict American investment in Chinese companies in the rare earth supply chain, among other things.
Decoupling from China’s Medical Supply Chain
The report says the Communist China virus pandemic has exposed significant weaknesses in the U.S. health care supply chain. In the early stages of the Epidemic, the CCP repeatedly prevented U.S. companies from exporting products made in its Chinese factories to the United States. The Communist Party also claimed that the United States would be “plunged into the hell of the Communist virus” if China banned drug exports.
The U.S. has mistakenly placed its medical supply chain in China, allowing the CCP to dominate the production of basic chemicals, active pharmaceutical ingredients (APIs) and medical devices. Nearly 90 percent of U.S. generic drugs have two-thirds of their active ingredients from China, and the U.S. can no longer produce penicillin, aspirin, vitamin C and many generic antibiotics domestically, according to researchers at the University of Minnesota.
In recent years, more than 90 percent of all U.S. antibiotics, vitamin C, ibuprofen and hydrocortisone, more than 70 percent of acetaminophen and 40 to 45 percent of heparin have been supplied by Chinese manufacturers. In some cases, there are also no suppliers of essential drugs outside of China, meaning that U.S. patients will be at the mercy of the Chinese Communist Party.
Chinese drug safety and quality standards, too, are notoriously low. The reason for this is that the FDA does not regularly test finished drugs or their ingredients, relying instead on voluntary testing by companies. By the Time the FDA finds a problem, it is too late. As in 2008, a contaminated blood thinner from China killed more than two hundred Americans.
It is no accident that Beijing dominates the medical supply chain. Like rare earths, the CCP has identified healthcare as a strategic industry and has given full support to domestic producers to drive foreign competitors out of the market.
The CCP has positioned itself as the dominant player in the global supply chain. In fact, the CCP has publicly announced its intention to dominate the global medical market, and its “Made in China 2025” strategy identifies biomedical and medical equipment as one of ten key industries that the CCP aims to dominate within a decade.
The destruction of the U.S. pharmaceutical manufacturing industry is the result of the CCP’s brazen low-price dumping strategy. In the case of penicillin, for example, Chinese companies formed a monopoly group and began dumping the drug’s raw materials into the international market in 2004. That year, the last penicillin production plant in the United States announced its closure. Penicillin manufacturers, from Europe to India, soon closed down one after another. Within four years, the Chinese Communist Party had a stranglehold on the world’s production of this vital Life-saving drug. Then, with competitors wiped out, the Chinese Communist Party raised prices dramatically.
America’s dependence on China also extends to medical equipment. The U.S. even outsourced the production of basic supplies such as medical masks, gloves and epidemic-proof clothing to China, a mistake that became apparent early in the epidemic when the U.S. did not have the domestic capacity to provide doctors with adequate personal protective equipment (PPE).
The inability to produce essential medical supplies in the United States was a huge danger to Americans. The U.S. military also relies on medical supplies from China to care for U.S. service members, including those on the front lines deployed to Asia to contain the Chinese Communist Party.
The United States must reduce its reliance on Chinese APIs. The U.S. government should mandate that all federally procured or reimbursed drugs, by a certain date, contain no Chinese-made APIs. This would affect drugs reimbursed by the Departments of Defense and Veterans Affairs (VA) and the Centers for Medicare and Medicaid Services (CMS). By using the federal government’s purchasing power to incentivize pharmaceutical manufacturers to pull their supply chains out of China. If companies are indifferent to the federal government’s purchasing requirements, then they can be phased in with increasingly higher surcharges on China-related medical production chains, while providing tax breaks for those companies that bring production back Home.
The U.S. government must work to make the healthcare supply chain more transparent. The FDA should require all drugs sold in the United States to be labeled with their country of origin. If Americans know that the drugs they buy in pharmacies are from China, they may avoid buying them altogether, increasing the demand for non-Chinese alternatives.
The FDA, too, should maintain an online website for generic drugs, one that could include information on where the drug’s ingredients are sourced and where they are manufactured.
Drugs and medical devices are as strategic a national resource as Food, oil, and weapons. U.S. policy should finally treat them accordingly and address the nation’s alarming dependence on China for its health.
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