Anne O. Krueger’s thoughts…Trump’s war on public health


US President Donald Trump’s administration is effectively waging war on human health. In addition to imposing tariffs on imported medical equipment and restrictions on exports, the White House has proposed cutting the budget of the US Centers for Disease Control and Prevention by 16%, starting in October. Moreover, Trump has also tried to divert blame on to the World Health Organization, after he himself long denied the threat of COVID-19, initially dismissing criticism of his administration’s response as the Democrats’ “new hoax.”

Because viruses ignore political borders, they can create far-reaching externalities, both for the economy and for public health, which is itself a global public good. Over the years, policymakers, scientists, and other experts have amassed a great deal of knowledge about preventing and treating viral illnesses. Collecting data and evidence on the spread of contagious diseases has been critical to that effort. In 1851, representatives from around the world convened in Paris for the International Sanitary Conference to address cholera. By 1897, there was also an international convention to tackle plague. In the decades that followed, outbreaks of both diseases fell substantially.

Then, after World War II, the WHO was established as the global institution in charge of collecting and sharing health data, coordinating research, and offering guidance on epidemic preparedness plans. Thanks to its contributions, recent epidemics of H1N1 (swine flu), SARS, MERS, and Ebola have been contained. Yet despite the importance of the WHO’s work, the United States has not had a representative on the organization’s executive board since 2018 (though Trump finally announced his intended nominee for the position last month).

Nonetheless, US citizens are among the top staff at the WHO, and thus were fully informed of the COVID-19 outbreak as soon as China disclosed it in late December. Trump, in typical fashion, denies knowing anything, even though the US intelligence community had been warning him about it at least since January.

Worse, Trump has announced that the US will withhold some $500 million in funding for the WHO pending an investigation of its supposed mishandling of the coronavirus outbreak. His denigration of the body has elicited a strong objection from the presidents of the US National Academies of Sciences, Engineering, and Medicine, who point out that continued funding for the WHO is critical, given its “lead role in coordinating an international response” to the crisis, “especially in developing countries.” There can be no chance of recovery in the US, they warn, “until the threat of the pandemic subsides in other nations.”

The Trump administration’s behavior on the trade front has been no better. During the years when the WHO was coordinating efforts to support global public health, the World Trade Organization (preceded by the General Agreement on Tariffs and Trade) was facilitating the liberalization of international trade. Just before the COVID-19 pandemic erupted, trade in medical products had grown to about $2 trillion annually, and constituted about 5% of total world trade.

In fact, trade restrictions had dropped so sharply that the average tariff on medical supplies was under 4.5% globally. The US was importing around one-third of all its medical equipment, with Mexico the top supplier. Many of these imports consisted of labor-intensive parts and goods produced abroad by American-owned companies or joint ventures. US trade in medical products was fairly balanced, with $47.5 billion of exports and $51.6 billion of imports in 2018.

But since the Trump administration launched its war on trade, US tariffs on medical products imported from China – which previously supplied around one-quarter of US medical imports – have increased from 0-4.5% to 25%. True, some US tariffs on Chinese imports were partly rescinded, following a “phase one” trade deal in February, but the Trump administration has since begun a new effort to restrict US exports, not least by pressuring 3M, the largest manufacturer of face masks, to suspend its foreign sales and re-shore its Chinese production. 3M has agreed to increase its production for the US market, and the administration is now pressuring other producers to follow suit.

As with tariff increases, export restrictions inevitably invite retaliation. By the end of March, more than 89 countries had already limited their own exports of medical equipment. But the more that exports are restricted, the more that importing countries must build their own domestic capacity. In the end, everyone is harmed, because the shift to domestic production by importing countries crowds out exporters who can make the same products at much lower cost.

Export restrictions are damaging in both the short and long run. In the short run, they leave importing countries unable to provide sufficient medical equipment, and the quality of health care suffers as they increase their own production capacity at high cost with delays. Meanwhile, exporting countries can have more supplies than they need, and do not increase capacity as much as they would have with open export markets.

In the longer run, exporting countries lose sales and are producing items that had previously been imported at higher cost, while importing countries protect their producers both because capacity has been installed and because they are concerned about the next time supply gets short. The result is higher prices for medical equipment.

In addition to increasing the global efficiency of medical equipment production, significant cost savings could be achieved through risk pooling, which would allow for peak needs during emergencies to be addressed even with lower total capacity. The problem, of course, is that once a few countries start restricting exports in the face of a pandemic, a race to the bottom ensues. That is why the coordinating roles played by the WHO and the WTO are so important.

Insofar as either of these institutions needs to be reformed, it should be to strengthen them, not to cut their funding or shrink their operating capacity. And as with attacks on international institutions, unilateral import tariffs and export restraints will yield only self-inflicted wounds. A trade war is bad enough in normal times; to continue one in response to a pandemic is shockingly irresponsible. All tariffs and export restraints should be rescinded immediately, and support for international organizations reaffirmed. Otherwise, the worst economic crisis since the 1930s will become even more painful.

Anne O. Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.

Copyright: Project Syndicate, 2020.

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