China‘s Dominance in Pharma Inputs Prompts US Consideration of Price Floors adn Diversification
The United States is considering implementing import price floors on critical pharmaceutical inputs and diversifying its supply chain away from China, which currently holds a dominant position in the global production of active pharmaceutical ingredients (APIs). This move is driven by concerns over national security and supply chain vulnerabilities highlighted by the COVID-19 pandemic and ongoing geopolitical tensions.
A recent report revealed a significant reliance on China for essential medicines.China is the sole supplier of at least one chemical used in nearly 700 crucial medicines, and provides half of the APIs used in the US. Even seemingly diverse supply chains, like that of the antibiotic amoxicillin – sourced from countries like Spain and Singapore - are heavily dependent on China for its four key inputs.
This dependence raises concerns, as demonstrated during the pandemic when medical supply shortages exposed the risks of relying on single sources. While Beijing did not weaponize medical exports even during the height of the US-China trade war, the potential for disruption remains, alongside the risk of future global health crises shutting down supply lines.
Leland Miller, a member of the US security review commission, described Beijing’s control over a “scary chunk” of APIs. The commission aims to foster a supply chain involving India and other allies to achieve independence from China in specific, critical areas, though it lacks the authority to directly mandate action from Congress.
however,shifting production away from china presents significant challenges. China’s focus on lowering costs since the 1980s has created a competitive advantage. According to one state media report, replicating the Chinese supply chain for raw ingredients coudl increase costs for US firms by as much as 50%.
washington is exploring strategies to address this cost disparity, drawing inspiration from a recent Department of Defense agreement with MP Materials Corp., a California-based rare earths producer. This deal establishes a 10-year price floor, guaranteeing the company payment for the difference if market values fall below a predetermined amount.
A similar model is anticipated for the pharmaceutical industry, focusing on decoupling from China in sectors deemed vital to national security. While a complete overhaul isn’t feasible, the US is prepared to invest in rebuilding domestic or allied production capacity for the most crucial medicines, even at a higher cost.
