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U.S. Healthcare Industry Could Be Decimated By The Trade War

Drugs

Beijing has more than one powerful ace up its sleeve in the trade war theater, and drug manufacturing is a foreboding one.  Over the past week, the ongoing conflict between the world’s largest economies took a turn for the worse after President Trump threatened to slap tariffs on virtually all Chinese imports into the country. Washington has a clear advantage when playing the tariff trump card since the country imports nearly 4x as many goods (dollar value) from China as China does from the U.S.

But China has repeatedly refused to be the first to blink. 

It’s immediate response was to allow the yuan to devalue to an 11-year low--effectively nullifying some of the effects of the tariffs--and also threatened to stop buying U.S. agricultural products.  

If push finally comes to shove, China might decide to stop playing passive aggressor and resort to even deadlier measures. 

The two most frequently mentioned ‘nuclear options’ at its disposal are dumping it’s trillion-dollar cache of U.S. Treasuries and cutting off rare-earths supplies to U.S. manufacturers.

Yet, another oft-ignored risk is Beijing’s potential disruption of vital drug supplies to the U.S. or, worse still, willfully contaminating the drugs with harmful compounds.

Drug supply dominance a security threat

According to Bloomberg, Trump’s administration has become increasingly wary of China’s dominance in the global drug supply chain and now sees it as a genuine national security threat. China has grown into the world’s largest supplier of active pharmaceutical  ingredients (APIs)--useful drug-making compounds supplied to drugmakers.

A year-long recall of blood pressure and heart medication such as losartan, valsartan and irbesartan after discovering they contained trace amounts of cancer-causing impurities has turned attention to this real or perceived threat even as the trade war escalates to unprecedented proportions.

What has rung the tocsin for the authorities, including the Pentagon, is the fact that millions of civilians and military staff take drugs whose active ingredients are made in China. 

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For instance, Larry Wortzel, a military retiree and member of the U.S.-China commission, has told Bloomberg that four versions of  his blood-pressure lowering medication valsartan were recalled over a three-month period after it was discovered that they were laced with rocket fuel. Specifically, the drugs contained NDMA, a manufacturing by-product and potential carcinogenic that was once used to make rocket fuel. The drugs were manufactured in India but had active ingredients sourced from China.

“They were contaminated with rocket fuel,” he revealed. “I imagine active people have the same problem. This affects the readiness of our troops.”

Catch 22

Just like the rare earths dilemma, the U.S. healthcare industry is finding itself in a Catch 22 situation since it cannot easily cut off all drug supplies from China. 

The Trade Agreements Act of 1979 requires the Defense Health Agency and other federal agencies to only use pre-approved drugs that are made in the U.S. or from a compliant country. 

As you might imagine, China is not on the approved list; however, the agency has waivers for nearly 150 drugs from the country because it would not be able to procure them from anywhere else. Moreover, the TAA only covers finished products and not their components--though that’s more of a legislative issue that can probably be fixed.

Yet, quality is just one of the concerns here. China can potentially cut off actual drug supplies to the U.S. thus crippling the industry. Rosemary Gibson, the author of China Rx, highlights this dilemma:

If China shut the door on exports, our hospitals would cease to function, so this has tremendous urgency,” she has told Bloomberg.

The potential solution is definitely not short-term. As Christopher Priest, a Defense Health Agency director, told a U.S.-China advisory panel last week, the federal government should compel pharmaceutical companies to build and maintain the necessary infrastructure to manufacture drugs without relying on unfriendly countries like China.

That might sound like another bad case of American jingoism yet the end might, in the end, justify the means.

By Alex Kimani for SafeHaven.com

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