Economists Say Politicians Drawing Wrong Conclusions From PPE Shortages
An economist in Europe and one in the U.S. say policymakers talking about the vulnerabilities of supply chains are drawing the wrong conclusions from the shortages of personal protective equipment, but while they say policy decisions should be fact-based, it's not clear that procurement professionals can influence the politicians. Simon Evenett, an international trade professor at Switzerland's University of St. Gallen, said during a Peterson Institute for International Economics program that in most medical goods and medicines, China is not the largest supplier, though it is for PPE.
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“The notion that before the [COVID-19 pandemic] crisis we over-sourced from China can really be set to one side,” he said Oct. 21. While he is critical of export bans on PPE -- which both China and the U.S. instituted -- he said that the real problem is the demand surge, and asked if it was reasonable to expect that supply chains could perform in those conditions. He also said that an earlier FDA study on drug shortages found that of 150 documented shortages, 128 were due to demand surges and only 22 were due to scarce inputs. “The problem we face is how to ramp up supply when there is a massive surge in demand,” he said.
He said there's been a “huge shift in policy rhetoric” around moving production out of China and back home for critical goods. “Whether it sustains or not is another matter,” he said. He said that corporations have a stake “in talking some sense into policymakers.”
PIIE scholar and Syracuse University professor Mary Lovely said politicians “are proposing costly and perhaps futile remedies” for the shortages of goods needed to fight the pandemic. Lovely contrasted Japan's efforts to reshore and diversify out of China and the U.S. Section 301 tariffs. In Japan's case, she said, there was acknowledgement that some manufacturing was never coming back to Japan, and companies were given subsidies to move those factories to other Southeast Asian countries. In other cases, there was “public money to compensate firms for the cost of moving supply chains back to Japan,” she said.
In America, imports of Section 301-affected goods fell nearly 30%, but China's share of world exports didn't change. She gave the example of Giant Bicycles, which shifted some work from Taiwan to China to make room for other work to move from China to Taiwan for export to the U.S. Multinationals like Giant can adjust quickly, but, she said, if the government doesn't compensate companies to get the desired sourcing goals, “small and medium enterprises might find they’re bearing a disproportionate burden.”
Lovely said economists were surprised to find that none of the cost of tariffs was borne by Chinese producers, it was all paid by importing firms and consumers.