Breaking China’s Pharma Death Grip

Reducing American dependence on China has been a pillar of U.S. foreign policy for the past six years. Washington has mixed tariffs, subsidies, and export controls to unwind or prevent Chinese leverage over the U.S. economy, including semiconductors, critical minerals, batteries, and solar panels. But Washington has left untouched perhaps its most dangerous reliance on China: pharmaceuticals.

China is a key producer of generic pharmaceuticals, granting Beijing deadly leverage over the well-being of Americans. Unwinding this dependence will require Washington to apply its increasingly familiar industrial policy toolkit, including tax credits for domestic pill producers, tariffs on Chinese medicines, and the creation of a stockpile of medical ingredients and chemicals.

The scope of the dependency is vast. China is a primary supplier of generic medicines, which account for 90% of all prescribed drugs in the United States. America relies on China for penicillin, antibiotics, anti-depressants, oral contraceptives, chemotherapy, and treatments for Alzheimer’s, HIV/AIDs, diabetes, epilepsy, and anthrax, among others. Fully 100 drugs require ingredients made in only one Chinese factory. India, the other heavyweight generic drug producer, sources from China some 80% of its active pharmaceutical ingredients (APIs), the building blocks for medicines. Approximately 45% of key starting materials, which are used to make APIs, are made only in China. This reliance became clear to the public during the COVID pandemic, when in March 2020 China threatened to cut off pharmaceutical exports and leave America in a “sea of coronavirus”.

Few details beyond these are publicly known. The FDA does not publicly disclose from where American pharmaceuticals are sourced. The White House’s June 2021 report on supply chain risks highlighted the kinds of drugs America relied on China for, but it did not detail the degree of that dependence. The danger may be worse than the U.S. government realizes.

Relying on China for life-saving medicines risks dire consequences. Beijing could threaten to block the export of medical supplies to the United States in a future trade war. Beijing could attempt to cause the collapse of the hospital system in retaliation to American action in a Taiwan crisis. During the U.S.-China trade war in the first Trump administration, former Director of the National Economic Council Gary Cohn reportedly warned: “If you’re the Chinese and you want to really just destroy us, just stop sending us antibiotics”.

American policy to date has not moved fast enough to address this challenge.

The Biden administration announced in 2021 that America needs “increased domestic production capacity for key drugs”. Two years later it set the “bold goal” of producing “at least 25%” of all APIs in the U.S. by 2028. But there is limited evidence the administration is on track to do so. The Department of Health and Human Services announced in September that it would use $14 million to manufacture APIs needed to treat asthma, diabetes, and anxiety. This is a positive step, but it should be the first of many more.

Congress, for its part, considered multiple, potentially effective measures in the shadow of COVID, but it has only mandated the Defense Department report on its reliance on foreign sources for drugs. The department found in 2023 that up to 27% of all drugs the U.S. military purchases are “100% dependent” on Chinese manufacturers or APIs.

Washington could take four steps to eliminate U.S. reliance on Chinese medicines.

First, Washington needs the facts. The FDA should publish an annual report of which APIs and key starting materials America relies on China for, and at what degree. Congress could also mandate that pharmaceutical companies state on consumer pill bottles where the medicine’s ingredients are sourced from.

Second, the United States could offer incentives for domestic manufacturing. A good start would be for Congress to grant tax credits for the domestic production of generic drugs and their components. Washington could do the same to encourage the adoption of advanced manufacturing technologies to make that production more efficient. Congress could also increase demand for U.S.-made drugs by prohibiting the Departments of Defense and Veteran’s Affairs from purchasing drugs with Chinese components. Since the 2020 U.S. v. Acetris ruling, drugs have fulfilled congressional “Buy American” rules as long as they are assembled domestically, even if they include Chinese components. Congress could close this loophole to ensure domestic manufacturers can secure these large customers.

Third, Washington could apply tariffs or import quotas to Chinese medicines and chemical inputs. Beijing suffocates foreign competitors with low prices by flooding markets with an artificially high supply. Chinese penicillin producers in the 2000s reportedly colluded to sell their products below market prices to smother their U.S. and European competitors. China’s pharmaceutical producers also have lower production costs because the FDA is unable to enforce safety standards on foreign-made drugs.

American drug manufacturers would surely be more inclined to ramp up production if they knew they wouldn’t be wiped out by China’s underpriced medicines. If Washington were to phase in tariffs on Chinese-finished medicines, APIs, key starting materials, and drugs containing Chinese inputs, it would ensure that producers based outside of China could compete. The incoming U.S. Trade Representative and Secretary of Commerce will have clear legal authority to do so through Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.

Fourth, Washington could stockpile ingredients to make pharmaceuticals. Doing so would prevent the collapse of the U.S. medical system if China were to block pharmaceutical exports before Washington could build non-Chinese medicines. The Strategic National Stockpile already stores medicines and medical equipment relevant for disasters such as smallpox outbreaks and anthrax attacks. But the United States will also need to stockpile components of those medicines – active pharmaceutical ingredients and key starting materials – so that it can continue producing medicines during a crisis. The Department of Health and Human Services launched the Strategic Active Pharmaceutical Ingredients Reserve for this purpose in 2020. That reserve is reportedly only 1% full. HHS should purchase an 18-month supply, which would cost only tens of millions of dollars.

The incoming Trump administration could welcome its allies and partners to take part in this strategy. India’s role, for instance, can grow as it eliminates its reliance on Chinese-made medical ingredients. Despite government subsidies for domestic API producers beginning in 2020, Indian manufacturers remain dependent on many Chinese inputs. Aurobindo, India’s biggest supplier of generic drugs to the United States, reportedly sources half of its APIs and precursors from China.

Two serious counterarguments to this plan are worth considering.

First, some will point to higher prices for generic medicines. True, there’s no free lunch. But Chinese drugs come with hidden health costs. The FDA is unable to ensure China’s safety practices. It inspected just 6% of foreign medicine manufacturers in 2022. As a result, generic drugs often contain carcinogens and other contaminants unbeknownst to consumers. For example, scores of U.S. kidney patients died in 2007 from contaminated blood thinner made in an uninspected Chinese plant. Americans should be confident their drugs will not poison them.

Second, some have argued that U.S. reliance on Chinese pharmaceuticals is manageable because China imports American medicine, mostly in cutting-edge treatments like cancer drugs. Beijing has already reduced its reliance on foreign inputs in many industries—electric vehicles, shipbuilding, critical minerals, and, increasingly, microelectronics. There’s no reason China can’t do the same for high-end medical products.

There is perhaps no other instance in history of a great power relying on its main adversary for its medicine. Depending on China for goods essential to the daily well-being of the American public invites Beijing to flex that leverage to inflict a strategic defeat on the United States. Washington should not wait to see where and when China might do so.

Washington has the tools to reverse this crisis-in-waiting. The United States should use them.