Leibowitz: What We Are Made of—COVID-19 and Trade

We need to do two major things to address the current crisis: (1) keep the spread of the virus to a minimum to avoid overwhelming our medical care system; and (2) maximize the chance that the economy will be able to get back on its feet quickly when people can leave the house. Smart international trade responses can help with both strategies.

Lately, I’ve seen examples of good and not-so-good responses. Here are some examples.

The Good Things

First, the good: President Trump signed the supplemental bill (known as the “CARES Act”) on Friday. The bill passed the Senate 96-0 and the House by a voice vote (made necessary by the virus because a roll call vote would have required House members to travel to Washington, exposing them to the virus). This is, by all accounts, a very necessary piece of legislation, which addresses both major facets of the current crisis. It’s beyond my mandate to explain the bill (and would require me to stay up past my bedtime)—but critics are those who think the bill goes too far or doesn’t go far enough.

The U.S. Trade Representative has issued at least four notices on exclusion of products from the China tariffs imposed on nearly all imports from China. In the month of March, USTR has focused on products that hospital and medical personnel need to protect themselves from the virus. Many of these are disposable products: masks, shoe covers, medical uniform covers, cleaning supplies and the like. The private sector has also stepped up production of medical equipment, including surgical masks. The National Council of Textile Organizations (NCTO) announced that nine textile-related companies have established a new supply chain of medical masks and other textile needs for medical professionals, which soon will provide up to 10 million masks per week, according to an NCTO announcement. Personally, I’ll welcome the day when hospitals are complaining that they don’t know where to put all the masks they’ve got. Maybe it won’t be too long.

Second, Sen. Charles Grassley (R-Iowa), chairman of the Senate Finance Committee (in charge of trade and tax matters, among other issues) wrote a letter last week (supported by all Republicans on the Finance Committee) to President Trump making some important suggestions that involve trade policy decisions, including:

• Make sure that trade restrictions, including tariffs and quotas, “do not jeopardize the global response to the pandemic.” Sen. Grassley urged the president not to impose additional “Buy American” requirements for medical equipment.

• Tariff relief for medical devices, pharmaceuticals and other health-related products. That has been addressed, although perhaps not adequately, by the USTR notice referenced above.

• Temporary duty-deferral of duty collection for businesses. The letter suggested a 90-day extension, similar to the extension of income tax payments recently announced by the government.

• Expand and extend product exclusions for Section 301 tariffs (China and retaliatory tariffs for European Union products because of the Airbus/Boeing aircraft disputes). In particular, the China tariffs had an exclusion window that has closed—the letter urges that Americans be able to apply for exclusions due to the changed circumstances of the pandemic.

• A global “total” moratorium on new tariffs or increased tariffs.

Third, calls are increasing to put the tariffs on hold, although they are not yet being answered. As I mentioned earlier, this crisis has two major elements. The preservation of the economy is one. If companies can’t keep workers on the payroll because they have to pay 25 percent (or 10 percent) tariffs, they will not be around when the emergency is over. The groups advocating a tariff moratorium point out that the ability of U.S. manufacturers and others in the supply chain to absorb the tariffs is at a low ebb now. They support at least a 90-day moratorium on Section 232 tariffs.

The Not-So-Good

Ventilators are needed by the tens of thousands to supply makeshift hospitals that are being set up around the country. There has been a lot of finger-pointing about ventilators. Everyone needs more, and if other countries had more to export to the U.S., we should drop all import barriers until we have what we need.

Unfortunately, most countries that make ventilators need them as much as we do. So, we must ramp up production, pull older machines out of mothballs and produce repair parts in great profusion. You may have read about the Defense Production Act being invoked to compel U.S. companies to make ventilators. That, like all government regulations, comes with complex conditions and red tape. It appears that these are being worked out.

General Motors may (or may not) be making ventilators soon—and they are already supplying increased quantities of OEM and replacement parts, according to news stories. But other companies that already make the machines are all gearing up, such as General Electric’s health care business, Medtronic and ResMed, as well as privately held companies like Hamilton Medical. This is not bad, but it shows the complexity involved in getting government involved in production. The six months after Pearl Harbor come to mind. The not-so-good part of this story is the sniping between the government and the private sector and the attendant delays that are hurting the battle against the pandemic and the economy too.

The Bad

Then, there are the really-not-good developments. On March 20, U.S. Customs announced that it would accept requests by importers for a 90-day extension of duty obligations. This would include the Section 232 tariffs on steel and aluminum. Within days, five steel trade associations sent a letter to the president opposing a possible time-out for tariffs. On March 26, Customs reversed itself, leaving importers with only the physical inability to make payments as grounds for an extension. It remains to be seen how much impact this retreat will have on the steel and aluminum supply chains, but it certainly doesn’t help.

Another bad sign is the announcement from 54 countries (according to a recent study by advocacy group Global Trade Alert) limiting exports of medical equipment needed to address the pandemic. The list includes a large slate of developed countries (for example, several EU member countries and Switzerland) that should know better. These restrictions are reminiscent of the “beggar thy neighbor” tactics of the 1930s, which did not end well. Countries, including the United States, have not restricted exports, except in certain strategic areas (such as exports to Iran). The study points out that many developing countries rely on imports of products such as ventilators; the limitation on exports will hit them the hardest. But the U.S. could use some ventilators too, right now.

We are part of an interdependent world now. When we try to go it alone, we usually end up worse off. One of the hallmarks of the last four years is an effort to impose trade restrictions as a method to get a better deal for our economy. When the chips are down, as they are now, we may find ourselves reaping the fruits of these trade policy choices through reduced international cooperation in fighting disease and consequent economic disaster.

As we address the medical side of this crisis, the COVID-19 cases (and fatalities) are likely to increase. We are all in this together, and we need to work better together. I am encouraged by the increased spirit of cooperation that America and other countries are showing. Helping others is a tremendously important part of that.

Gotta go—I have a Zoom party. Ciao!

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