How it happened, and how we can shore up our supplies.
When we look back on America in the time of the coronavirus pandemic, we’re going to remember all kinds of awful examples of our terrible public response. Instead of just masking up and dialing back our holiday plans, everyone believed what they wanted to believe, we collectively flouted guidance meant to slow the virus’ spread, and nearly 300,000 of our fellow citizens died (so far).
But let’s not forget the PPE shortages!
Ah yes, the shortages. PPE – personal protective equipment – refers to medical-grade items like gloves, gowns, face shields and face masks that healthcare workers use when in close contact with contagious patients. And when a highly contagious respiratory virus spread across the world in early 2020 and every hospital system and clinic in the United States suddenly needed lots of it, the United States just … didn’t have it.
We just didn’t have it! Or not enough of it, anyway. The government had a stockpile, but it was both underfunded and understocked. There were a few manufacturers of this equipment here or there across the country, but they themselves for years had been warning that the domestic capacity to make this stuff quickly was very thin. There simply wasn’t an industrial park full of PPE manufacturers somewhere in America that the government could call up and set to work with billions of dollars of orders.
That’s because this industry did what many industries that once manufactured in the United States have done – it went global, looking for low-cost factories, that could turn around orders immediately. And that meant that immediately before COVID-19 emerged 50 percent of the world’s supply of PPE was manufactured in China.
This isn’t exactly shocking. China has built itself into a manufacturing powerhouse in the past few decades, enough so that it can be credibly called the modern workshop to the world. But localizing the majority of production of anything during a surge in demand can create problems.
Such was the case of PPE and China, where the coronavirus first emerged, and when it was peaking there in late 2019 and into 2020, China itself was buying up tons of PPE as the Chinese government tried to contain the spread.
By April, some suppliers importing from China reported the government there was effectively taking over PPE production lines and directing their output toward China’s own domestic uses. Earlier than that, the Chinese government threw up export restrictions, meaning PPE manufacturers weren’t allowed to let their stuff leave the country to reach other customers.
Commandeering factories and halting exports obviously made it hard to PPE on the fly. But even if you set that stuff aside, PPE production running through China simply meant bottlenecks as virtually the entire world scrapped and hustled to put together deals there to secure these materials for their own healthcare workers. In the United States, this lack of supply and spike in demand blossomed an industry of middlemen looking to cash in on a global health crisis, the federal government fighting states fighting private healthcare systems to get hold of supplies, and crazy scenes where state-level bureaucrats made frantic deals for medical supplies in restaurant parking lots.
I love that parking lot example, because that actually happened in Illinois in April:
About two weeks ago, Illinois officials tracked down a supply of 1.5 million potentially life-saving N95 respirator masks in China through a middleman in the Chicago area and negotiated a deal to buy them.
One day before they were expecting to complete the purchase, they got a call in the morning from the supplier informing them he had to get a check to the bank by 2 p.m. that day, or the deal was off. Other bidders had surfaced.
Realizing there was no way the supplier could get to Springfield and back by the deadline, Illinois assistant comptroller Ellen Andres jumped in her car and raced north on I-55 with a check for $3,469,600.
From the other end, Jeffrey Polen, president of The Moving Concierge in Lemont, drove south. Polen isn’t in the medical supply business, but he “knows a guy,” an old friend who specializes in working with China’s factories.
As they drove, Andres and Polen arranged to meet in the parking lot of a McDonald’s restaurant just off the interstate in Dwight. They made the handoff there.
Polen made it back to his bank with 20 minutes to spare.
This kind of thing happened elsewhere too, in similarly crazy scenes. Gov. Larry Hogan of Maryland had the state’s National Guard actually guard coronavirus test kits because he was concerned that the feds would poach them for the national stockpile. California, meanwhile, cut a roughly $500 million check to a medical supply company — founded literally days before by Republican political operatives looking to use their political connections to cut deals with state governments — before officials at the company’s own bank raised questions about the deal’s legitimacy and California clawed its money back.
These scenes illustrate just how crazy it was across America during the scramble for PPE.
Initially, and despite some truly excellent pandemic brainstorming sessions on live television, there was little coordination at the federal level on how to purchase and distribute PPE in a way both rational and equitable.
The country leaned heavily on our Strategic National Stockpile, a network of warehouses full of medical supplies and vaccines first authorized during the Clinton administration for national emergencies – like a chemical attack or a pandemic – while the Trump administration selectively invoked the Defense Production Act (DPA) to compel American companies to refit their factories and start making supplies.
But the stockpile was already depleted. We had dipped into it during the Obama administration for supplies to fight the H1N1 pandemic and used up a lot of the face masks. And no one – not the Obama White House, not Congress, not the Trump White House – built it back up.
When you combine that with yearly budget shortfalls, a huge surge in demand for PPE and fundamentally a lack of domestic manufacturing capacity, you get shortages like we have now. The big shortage at this moment is in gloves – specifically nitrile gloves, which are made of a specific rubber, mostly sourced in Asia.
It’s not all bad news, though. Production for some PPE has increased this year. For example, the United States now domestically produces about 150 million N95 respirator masks a month; that’s a huge boost from the roughly 20 million a month produced before the pandemic began in January.
But we’re still well short of our stockpile goals. The Wall Street Journal reported a few weeks ago:
The Trump administration said in May it was aiming to increase its emergency supply of N95 respirator masks to 300 million in the coming 90 days. It never met the goal; by mid-November, the U.S. Strategic National Stockpile and the Federal Emergency Management Agency held 142 million N95 masks, which filter out at least 95% of small particles and fit snugly to the face.
The U.S. also has yet to develop a centralized database to distribute medical gear to all health providers. The Department of Health and Human Services hasn’t adopted key recommendations to ease supply shortages made in September by the U.S. Government Accountability Office. A federal crisis response program hasn’t reached its staffing goals for health responders.
And as for what’s in the stockpile and its management – well, states have been complaining that it’s not exactly responsive. More from the Wall Street Journal:
“Some states say they haven’t been getting the PPE they have requested from the federal government. Others say they have received damaged goods. Still others have largely replaced efforts to procure medical gear from the national stockpile with PPE from private vendors.”
So … What can we do to prepare for the next health crisis?
This list is by no means exhaustive. But here are a few ideas.
We need to incentivize the making of more PPE. That can be done with expanded Buy America rules. My colleague Brian Lombardozzi wrote a few months ago:
“The federal government should look at what manufactured goods beyond infrastructure and national defense will be needed going forward and apply Buy America preferences accordingly. States that do not apply any sort of domestic preference to what they procure with their tax revenue should re-examine that approach, and states like New York need to look beyond iron and steel and include other manufactured goods.”
We aren’t the only ones to think of this. Rep. Bill Pascrell (D-N.J.) and Patrick McHenry (R-N.C.) have proposed legislation that would extend the Berry Amendment – a rule governing Department of Defense spending on apparel that requires a preference to domestic producers – to include PPE purchases. Their amendment would also extend the rule to purchasing by other executive branch departments like Health and Human Services, the Veterans Administration, and the Department of Homeland Security.
We could use a lot more of the DPA, which is something President-elect Joe Biden has vowed to do.
President Trump has used the DPA to compel 3M, Honeywell and Owens & Minor Inc. to up N95 mask production. He also invoked it to get auto manufacturers like GM to retool car factories to make the ventilators that were in short supply earlier this year.
But the Trump administration’s approach to DPA has been hesitant in the way you would expect a conservative Republican White House to be: It wasn’t super excited about pushing private industry to do things at the government’s direction.
If you only use the DPA haltingly, though, you miss out on the bonus you get from using it widely: Its ability to create a stable domestic market and give the companies compelled to participate in it the certainty of knowing that the government will guarantee contracts. That certainty allows companies to spend the money needed to retool, and it allows supplier companies to establish themselves farther down the supply chain.
“Where a Biden administration will be most poised and most needed to use this will be to help shore up health-care supply chains,” said Jeff Schlegelmilch, director of the National Center for Disaster Preparedness at Columbia University, to Bloomberg News. “As we’re seeing these cases go up and up and up, we’ve had a very decentralized federal approach to this, which has really just left states to fend for themselves.”
And we should create an environment in the American market where consumers can quickly know where the product they want to purchase was made. That means more country-of-origin labeling.
This is a concept that’s already been endorsed by Sen. Tammy Baldwin (D-Wis.) and Sen. Rick Scott (R-Fla.). Here’s what the Alliance for American Manufacutring wrote to Congress on the subject in March:
We should be taking steps to make it easier and more reliable for American consumers to buy products labeled “Made in USA.” This requires stronger enforcement of labeling laws, as well as broader application to reflect the changing nature of retail sales. Online retailers currently do not need to disclose country of origin information for products they sell, making it nearly impossible for consumers, who in poll after poll express strong preferences for American-made products, to align their spending with their values. Further, greater transparency in government procurement would promote domestic manufacturing. A single clearinghouse for all domestic content procurement preference waivers will empower small-and medium-sized manufacturers to identify new opportunities to sell to the government, and in turn encourage investments in domestic production and employment.
AAM policy recommendations to Congress, July 2020
Another thing the Biden administration needs to do? Get tough on trade. The National Council of Textile Organizations (NCTO) – which represents a bunch of companies that dropped everything to make face masks and other PPE at the start of the current crisis – recently put out a list of recommendations for Biden and Congress to strengthen the critical manufacturing supply chain.
Along with agreeing with some of the recommendations above, like expanding PPE production and deploying Buy America, NCTO points out that countries like China engage in predatory trade practices that unfairly put American companies at a disadvantage.
On a practical level, that means that U.S. companies that are working hard to manufacture locally and get PPE to frontline workers are having a tough time competing, even in the current climate. Here’s what Neil Gilman of Gilman Gear, whose company switched from making sports equipment to hospital gowns, recently told Congress:
“My American-made gown is two to three times more expensive then those made in China. However, my American-made gown is a higher quality and meets a higher level of protection. But in the PPE market, an isolation gown is considered a commodity item and buyers in the medical community are just looking for the cheapest price.”
This is exactly why strong trade enforcement is so important. The Biden administration needs to take actions that level the playing field for American workers and manufacturers like Gilman so that he isn’t at a disadvantage simply because he wants to make his goods locally (which also will get it to frontline workers quicker — no big ocean to cross).
One overarching theme of the debacle that is America’s response to the COVID-19 pandemic is just how important domestic manufacturing is, and not just during a crisis.
The United States no longer can allow our critical manufacturing to happen abroad. We need to keep it strong all the time, so that when the next crisis hits, we’ll be ready.
Along with implementing all of the action items above, it’s time for a national industrial policy that will strengthen American manufacturing, rebuild supply chains… and create millions of good-paying jobs, which will be critical as the country looks to rebuild economically after the pandemic.
Back in July, AAM President Scott Paul sent Congress a letter with a whole list of ideas for doing just that. Read it here.
Matt McMullan talked about this blog on The Manufacturing Report podcast. Listen below.