The U.S. doesn’t depend on China for 80 percent of the oil needed to fuel our economy. That would be economic suicide. But we do depend on China for 80 percent of the core components to make our generic medicines.
How dependent are we? If the Chinese government turned off the spigot, pharmacy shelves would be empty within months. Hospitals would cease to function. Doctors couldn’t perform surgery, treat cancers with recommended medicines, or provide dialysis treatment for people with kidney failure. Infectious diseases such as pneumonia and STDs would go untreated.
Members of Congress, the White House, the military, veterans, seniors—everyone would be affected. Generic drugs are 90 percent of the medicines Americans take. Thousands of them, sold at corner drug stores, grocery store pharmacies, and big box stores, contain ingredients made in China.
As a country, we recognize the geopolitical leverage China would wield if global oil supply and refineries were concentrated in a single country. But we have had a blind spot as to China’s chokehold on our medicines.
How did we get here? Here’s the story about how we lost our industrial capacity to manufacture antibiotics, life-savers against infectious diseases that if untamed would wreak havoc on the nation’s health.
In the late 1980s, antibiotic manufacturing plants were located all around the country. A report from Oak Ridge National Laboratory documented the location of antibiotic fermentation plants making penicillin, tetracycline, cephalosporins, and other antibiotics. The now-unclassified report had the contact information for plant operators, the type of antibiotic and volume produced, and technical specifications to repair the plants if they were damaged during an attack on the homeland. This was full-blown emergency preparedness circa 1988.
Fast forward 30 years. Antibiotic fermentation plants in the U.S. have disappeared. When the federal government needed to buy 20 million doses of the antibiotic doxycycline after the 2001 anthrax attacks, it turned to a European company that obtained the chemical ingredient from a plant in China. But what if China were the anthrax attacker?
It’s widely perceived that China became a dominant supplier of core materials to make our medicines because of lower labor costs and weaker environmental regulations and worker protections. In fact, China has pursued a deliberate strategy to disrupt, dominate, and displace advanced industries in the U.S. and other Western countries. China’s cartels are one of the tools in its toolbox to do just that.
A case in point is penicillin. The last penicillin fermentation plant in the U.S. once produced 70 percent of the world’s supply. It announced in 2004 that it was closing. This was the year when the Chinese cartel dumped the chemical material to make penicillin on the global market at below market prices, kept them low for four years, and drove out U.S. production.
The concentration of penicillin and other antibiotic production in a single country poses risks to our nation’s health security. Take the case of an antibiotic to treat life-threatening sepsis. One factory in China exploded and triggered a shortage in the U.S. and around the world.
Chemotherapy to treat cancer isn’t immune to China’s cartel strategy. The FDA had to ban chemotherapy products from a plant in China that is a dominant global supplier. The agency had received many reports from commercial customers about products that didn’t have the right amount of active ingredient, the part of a medicine that provides therapeutic value. Too much can be overkill, too little can render it ineffective. Hospitals had to ration chemotherapies because of a shortage.
Other essential medicines are ensnared in China’s cartels. A physician at a Boston hospital was quoted in the media recently saying he is concerned that his hospital won’t be able to perform cardiac surgery because of a shortage of a blood thinner, heparin. Once again, China is the dominant global supplier.
Unabashedly, China revealed its cartel playbook in a federal court filing in a long-running antitrust case involving a staple found in many American homes, vitamin C. The saga began in the early 2000s when a handful of Chinese companies formed a cartel and drove all U.S. and European producers of ascorbic acid, the core ingredient in vitamin C, out of business. American purchasers of vitamin C filed an antitrust lawsuit. Undisputed evidence shown at trial revealed that the Chinese companies colluded to raise prices and control supplies exported to the United States. A Brooklyn jury found the companies guilty of violating the Sherman Act.
The Chinese companies appealed the decision and the Chinese Ministry of Commerce filed a supporting brief, asserting that Chinese law requires its domestic companies to fix prices and the firms should be immune from U.S. antitrust law. In 2016 the U.S. federal appeals court in Manhattan ruled in favor of the Chinese companies. The court wrote that it was bound to defer to the Chinese government’s statements about its own laws.
The implications of the decision are staggering. If left unchecked, Chinese cartels are free to fix prices and control the supply of medicines and everything China sells to the United States.
The American companies appealed the decision to the U.S. Supreme Court with help from the Department of Justice, which finally weighed in after years of sitting on the sidelines. In a unanimous decision, the court said the appellate court isn’t bound by a country’s description of its own law. Evidence provided in the district court trial showed the companies conspired voluntarily. The case was sent back to the appeals court and a decision is pending.
China’s cartel strategy is working. Now, its target is for Chinese domestic companies to make our generic drugs, not just the ingredients. Within a decade, China achieved reported 9 percent market share of the generics sold here. They include antibiotics to treat anthrax exposure, anti-depressants, birth control pills, medicine for Alzheimer’s, HIV/AIDS, diabetes, Parkinson’s, and epilepsy, to name a few. Americans spend an estimated $6 billion a year on generic drugs made in China.
If past performance is indicative of future performance, China’s generic drug companies will engage in cartel practices and cause the collapse of U.S. and European generic manufacturing. In fact, remaining capacity faces an imminent existential threat. Western companies are ceasing production of many of their generics. The FDA maintains a list of medicines that are unavailable or in shortage. Many generics are unavailable because manufacturers have discontinued them.
China’s dominance is global. India is the world’s largest generic drug maker but it, too, is dependent on China for the raw materials and chemical building blocks to make medicines. Its industry would collapse without these Chinese imports.
China has demonstrated its prowess to funnel illegal fentanyl to communities ravaged by unemployment. It’s not a stretch of the imagination to consider what it can do with the legal supply of our medicines. Lethal contaminants and withholding supply are efficient means to take a country down.
The mitigate these risks, a first step is for Congress to give the Department of Defense and VA the flexibility to cut through red tape and procure generic medicines based on national security considerations and quality, not the cheapest price. Currently, the DoD and VA buy medicines based on price alone. This practice undermines force protection and combat readiness. It also increases the military’s dependence on China. Taxpayers will be dismayed to learn that a growing share of their money to buy medicines for the military and veterans is going to China.
As for cost, generics can cost much less if they were made using advanced manufacturing technology. Western generic companies won’t be investing in plant and equipment needed to make the switch from traditional manufacturing because of slim margins and their precarious situation.
The federal government has a track record in investing in public-private partnerships for the manufacture of flu vaccine and other essential medicines. A similar investment can be considered for commercial-scale domestic production of essential generic drugs, their active ingredients, and chemical starting materials. Long-term contracts with the Department of Defense, VA, and the Strategic National Stockpile will provide a public sector customer base.
Meanwhile, private hospitals can be another customer base. A consortium of hospitals was recently established to identify new manufacturers to make medicines in persistent shortage, pay them a fair price, and have long-term contracts so they can invest in quality manufacturing. Surely the nation’s hospitals don’t want to rely on China for business continuity and patient care.
The United States has a plan for energy independence. We need a plan for independence from China for vital medicines. We need to execute it rapidly. By doing so, we will recreate a robust and resilient manufacturing base and an ecosystem to assure a skilled workforce. And we will secure the nation’s health security and national security for generations to come.
Rosemary Gibson is senior advisor at the Hastings Center and author of China Rx: Exposing the Risks of America’s Dependence on China for Medicine. Follow her on Twitter @Rosemary100.
This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.