How severely can countries really punish China when many of them need Beijing for the most crucial of things—medical supplies?
“Hold China accountable,” urges a fundraising appeal from U.S. President Donald Trump. U.K. Foreign Secretary Dominic Raab vowed to ask “hard questions” and threatened the end of “business as usual” with Beijing. German Chancellor Angela Merkel urged China to be more transparent about how it tackled the outbreak. French President Emmanuel Macron said that it would be “naive” to compare China’s handling of the crisis with that of Western democracies, adding, “There are clearly things that happened that we don’t know about”—an apparent reference to the growing international skepticism over Beijing’s claims that it has contained the virus.
Denouncing China was a bipartisan sport in Washington well before the coronavirus pandemic, but now leaders in Europe, where the pandemic has also hit hard, are clamoring for accountability from China because of its early missteps and obfuscation, which abetted the spread of coronavirus around the world. But how severely can they really punish a government when many of them need Beijing for the most crucial of things—medical supplies?
China was already producing half the world’s medical masks even before the pandemic spread; it’s also a major source of pharmaceuticals and protective equipment at a time when countries around the globe are experiencing shortages.
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“The world is dependent on China for manufacturing,” Willy Shih, a professor at Harvard Business School who has written on U.S.-China supply-chain issues, told us. This isn’t just about medical supplies—it’s also about electronics, textiles, furniture, toys, and a lot more, adding up to about half a trillion dollars in imports. “So I’m in the school that talk is cheap. And if you really want to go down that path, then you have to be prepared for the consequences,” Shih said.
And it isn’t just a matter of simply relocating to hubs other than China, given that Beijing has cemented itself as the heart of global manufacturing, with more advanced internal supply chains than other possible substitutes.
If Western displeasure with China’s coronavirus performance is currently more rhetoric than substance, it may still presage some long-term changes, though there’s some evidence that countries are worried about even just antagonizing Beijing too publicly with their words.
France, like the U.S., is deeply reliant on Chinese supply chains, not only for medical equipment needed to cope with the coronavirus, but for its pharmaceutical and auto industries too. Macron recently announced that France would strive for “full independence” by ramping up its own production of face masks and ventilators, but it’s unlikely to be a quick solution (he said it would happen by the end of the year), or a cheap one. As a result of this crisis, “French companies will be under enormous pressure to repatriate some of their productions from other countries, and the obvious choice will be China,” Philippe Le Corre, a nonresident senior fellow in the Europe and Asia Programs at the Carnegie Endowment for International Peace, told us. Some already appear to be responding to Macron’s announcement. The French pharmaceutical company Sanofi said last month that it would launch a new Europe-based company to reduce its reliance on drug manufacturing in China and India, where the majority of the world's active pharmaceutical ingredients are made.
Le Corre cautioned that efforts to reduce French dependency on China could result in Beijing doing the same, which could have an adverse effect on some of France’s most profitable sectors, such as wine and tourism. “For many of these industries, the China market does matter,” he said.
In Britain, Raab’s suggestion of a shift from “business as usual” is similarly dubious. Like other countries, Britain has looked to China to obtain lifesaving materials such as testing kits and ventilators. Prime Minister Boris Johnson spoke with his Chinese counterpart, Xi Jinping, about their two countries fighting “shoulder to shoulder” to contain the outbreak in late February, only a month before Johnson fell ill with the virus himself.
Though Beijing doesn’t rank among Britain’s largest trading partners, in areas where the two countries do engage, such as the technology and financial sectors, the U.K. is unlikely to seek to upend those ties, Kerry Brown, a former British diplomat in Beijing, told us. “As [Britain’s] economy takes this massive hit, these are areas presumably where it wants to do what it can to maintain decent growth or any growth at all,” said Brown, who serves as the director of the Lau China Institute at King’s College London.
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Growing dependence on China has been a source of discontent in Britain since even before the coronavirus emerged. Earlier this year, Johnson gave the Chinese telecom giant Huawei permission to build part of Britain’s 5G network despite concerns that it could pose an intelligence risk and make Britain technologically dependent on China. The pandemic has reignited this debate, with some senior lawmakers urging the government to reconsider its position.
Though Beijing isn’t among Britain’s top-four trading partners, it is nonetheless a key economic ally—one that Simon McDonald, the head of Britain’s Diplomatic Service, this week told lawmakers “has become more important in the last few years.”
Then there’s the matter of Brexit, which is scheduled to go into full effect by the end of the year. “The U.K. will be seeking great new economic opportunities outside its traditional partnerships in Europe,” Brown said. “It would be weird if the world’s second-biggest economy didn’t figure in that.”
Some countries have already found ways to move away from China by tightening the rules around foreign investment. In doing so, governments in India, Germany, and Australia have argued, they can shore up their domestic capacity to produce essential materials without fear that they might be bought out by foreign investors. Though the new restrictions didn’t name China explicitly, “the impact of the policy on Chinese investors is clear,” a spokesperson at the Chinese embassy in New Delhi said in a statement.
The U.S., though, is a case study in just how difficult these kinds of efforts might prove to be.
Trump came into office determined to sever some of America’s deep trade entanglements with China, blaming the country for the loss of American manufacturing jobs to cheaper labor overseas. But even with the U.S. and China almost two years into a trade war featuring billions of dollars in tariffs on one another’s goods, the coronavirus has made clear just how intertwined their economies remain and how difficult it will be to separate them. The same White House vowing to seek accountability has airlifted tons of medical supplies from China. Even Trump is finding that it’s not so easy to turn away from China.
At one point last year he even, via tweet, ordered U.S. companies to find alternatives to operating in China, which he can’t compel but which some companies were already trying to do anyway.
On Capitol Hill, furthermore, Republican China hawks have spotted an urgent opportunity to press the case that Beijing can’t be trusted, and the U.S. needs to be able to produce far more of its own medical supplies as a matter of national security. Democrats, too, were openly fretting about medical-supply-chain dependence on China last fall. Lawmakers from both parties are pushing proposals now to encourage U.S. companies to make more medical supplies, but even with all this activity, any kind of real shift could take years, and the pandemic is moving much faster than the time it would take to rebuild entire industries. As Senator Tom Cotton pointed out in an op-ed with Republican Representative Mike Gallagher: “Just years after the United States granted China special trade privileges in 2000, the last penicillin plant in America closed down. American factories that made aspirin, vitamin C and other essential medicine closed after that, put out of business by China’s predatory pricing.”
This left the U.S. especially vulnerable when the Chinese government, in an effort to control its own country’s outbreak, directed its medical manufacturers in February to aim production for domestic use. “Now apparently past the peak of its COVID-19 outbreak,” notes the Congressional Research Service, “the Chinese government may selectively release some medical supplies for overseas delivery, with designated countries selected, according to political calculations.”
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An even bigger risk could be that China will weaponize medicines that other countries might need. For instance, “medicines can be made with lethal contaminants or sold without any real medicine in them, rendering them ineffective. These products can be distributed to specific targets,” Rosemary Gibson, who wrote a book on U.S. medical dependency on China, testified to the U.S.-China Economic and Security Review Commission this past summer.
Some countries have already witnessed pitfalls: Reports of faulty medical equipment from China have prompted governments in Spain, Turkey, and the Netherlands to reject Chinese-made gear. Britain sourced millions of coronavirus testing kits from two Chinese firms, spending $20 million, only to find that they didn’t even work.
The problem, however, does not reside solely in China—it’s more that China has managed to capitalize on America’s own appetites and the structure of its industry. A sudden spike in demand for medical supplies, like what we’re seeing now, would result in shortages no matter where they’re produced. “The focus on just China is the wrong focus,” David Simchi-Levi, an MIT professor who researches supply chains, told us. The bigger problem is that industries’ focus on cutting costs leaves no room to invest in building enough slack in the system to respond to crises like this. Investment in supply-chain resiliency costs money for no immediate benefit, and most of the time crises don’t happen. Either way, you end up with more expensive goods in the short term. Ultimately it’s the consumers who have to decide whether they’re willing to pay for that.
Shih recalled going to Home Depot last summer to pick up some N95 masks to protect him from dust during yard work. He set up a scenario: Suppose there were two identical sets of masks, one Chinese-made and one American-made. The American-made costs twice as much. Which would you buy?