“We Need More Equipment & We Need It Now” Reshoring Medical Supplies Could Create 302,000 New US Jobs

By Steven L. Byers, PhD and Jeff Ferry

The US is in the midst of a public health crisis and the country is struggling with shortages of essential health care supplies.

In most cases, these shortages are linked to our excessive reliance on imported supplies, which are arriving in much smaller quantities than ordered, if they are arriving at all. When this crisis is over, action must be taken to reshore the production of medical supplies. This will not only be good for patient and health care professional safety, it will be a large benefit to the US economy. We used our economic model to examine the impact of reshoring a significant portion of the medical supplies industry. We found that such reshoring would create 302,000 jobs and add $54 billion to US gross domestic product. It would also create 109,780 high-paying manufacturing jobs in the medical supplies industry. When combined with our previous study on reshoring a portion of pharmaceutical manufacture, combined results show that an ambitious yet realistic reshoring health care production program could create a total of 1.1 million jobs while boosting GDP by $254 billion.

The worst shortages are in personal protective equipment (PPE) used by doctors and other health care staff. Disposable rubber gloves are in short supply worldwide because 60 percent of them come from Malaysia and Malaysia’s top producer is suffering from supply shortages. An Associated Press investigation found that in the month to mid-March, shipments from China of hand sanitizer, swabs, and N95 facial masks were down some 40 percent over year-earlier levels, despite the US public health crisis. Shipments to the US are down because the Chinese government instructed its domestic producers to meet China’s huge demand before exporting product.  Even a humble consumer thermometer is in short supply: at time of writing, Amazon offers no thermometers, not adult, child, nor infant, for overnight shipment. Most of them would arrive in April or even May if ordered now. Further, the most common price on Amazon for an ordinary thermometer is today $79—for a product that would cost less than $20 at normal times.

New York pediatric surgeon Cornelia Griggs wrote:

“We are living in a global public health crisis moving at a speed and scale never witnessed by living generations…Making my rounds at the children’s hospital earlier this week, I saw that the boxes of gloves and other personal protective equipment were dwindling. This is a crisis for our vulnerable patients and health care workers alike…We are likely to run out of ventilators in New York…I say this not to panic you but to mobilize you. We need more equipment and we need it now. Specifically, gloves, masks, eye protection and more ventilators. We need our technology friends to be making and testing prototypes to rig the ventilators that we do have to support more than one patient at a time.”

New York City is the worst-hit city in the nation, with 2,000 new COVID-19 cases each day in recent days, 25,573 cases in total and 366 deaths as of Thursday morning.

But it is not the only troubled region, far from it. Colorado has the sixth highest number of COVID-19 cases among the states and also suffers from an acute shortage of protective equipment. On Monday, Colorado learned it would receive an emergency shipment of 49,000 N95 masks, 21,000 gowns, and other equipment from the strategic national stockpile. The state’s top health official said those supplies would last just one day. He pleaded with the public to donate more supplies. In this crisis, we have found that so-called strategic stockpile is inadequate. The nation of China, our largest source of imports, has turned its back on its best customer, preferring to meet its own needs first. Our allies have done the same. In the words of Cathy Denning, vice president of healthcare purchasing business, Vizient: “It’s this unbelievable place we find ourselves in—realizing we have a vulnerable supply chain.”

It is becoming widely apparent that outsourcing the production of huge parts of our medical equipment and supplies to foreign countries was a disastrous mistake. The COVID-19 crisis continues to accelerate yet will, we hope, be mostly behind us in a few weeks or months. But in the aftermath there will be growing resolve to bring back large volumes of production to the US. In the last twenty years, large healthcare multinationals outsourced production primarily to Asia. China was of course the primary destination, but not the only one, According to press reports, China, South Korea, India, and Taiwan have all taken action to block exports of supplies deemed vital for their home markets.

Michael Einhorn, president of Dealmed, a Brooklyn-based distributor of medical supplies throughout the northeast, has been one of the few voices in the medical industry criticizing the wave of outsourcing in recent years. He told us: “Even France and Germany, as globalist as they are, have banned the export of medical products. Even our so-called allies won’t be there for us in times of crisis like this.” And a columnist at the Financial Times, Britain’s supremely globalist newspaper admitted: “the pandemic is demonstrating that in times of emergency people fall back on the nation-state—which has financial, organizational, and emotional strengths that global institutions lack.”

Last week, CPA carried out an economic modeling exercise to show that in addition to the health security benefits, reshoring a substantial portion of our pharmaceutical industry to the US would have substantial economic benefits, specifically the creation of 804,000 jobs and a $200 billion boost to GDP. With the medical supply industry in a state of crisis, we have now carried out a similar exercise with regard to medical supplies. Our model shows that bringing home production of medical supplies would lead to an additional 302,000 US manufacturing jobs and a $54 billion boost to GDP. When those are added to the figures in our previous study, it can be seen that bringing home production of essential pharmaceuticals and medical supplies can generate 1.1 million jobs and boost GDP by $254 billion. This would be a substantial boost not only to the US economy, but to our health care safety and security, and our strategic independence.

In this modeling exercise, we made conservative assumptions, for two main reasons. First, we want to be conservative so as not to over-promise the benefits. But in addition, we were also aware that it is not easy to reshore many of these products quickly. The manufacture of many of these products depends on specialized machinery, which in some cases the US no longer makes. More complex medical supplies, like ventilators, rely on dozens of components and reshoring production in a meaningful way means reshoring the production of all but the most widely available components. Further, applying for and receiving regulatory approvals from the Food and Drug Administration takes time.

We began by identifying four categories of imports at the 4-digit HTS code level that are predominantly medical supplies. The industry has grown dramatically with the growth of health care spending in the US. Tables1 and 2 show the eight 4-digitHTS categories, the level of imports last year, and the change in imports since the year 2000, one of the key benchmarks in the globalization process (China joined the World Trade Organization in 2001). It can be seen that medical supply imports grew more rapidly than total imports in every one of these categories, by factors ranging from two to six.

The above import categories in Table 1 focus on supplies relevant to a flu-like pandemic such as COVID-19. There are other types of medical emergencies that require other medical supplies. We identified four additional categories below in Table 2 that include other types of medical supplies not generally related to dealing with a virus-borne pandemic. Imports in these categories also grew faster than total US imports, reflecting the growth in the health care industry and the rise of outsourcing. For example, orthopedic appliance imports grew by over 1,000 percent in the last 19 years, reflecting the huge technical progress that has been made in such equipment, as well as the wave of outsourcing of this manufacture to Asia. Our recent wars have involved many injuries from land mines, making orthopedic appliances a vital resource for our military.

The top ten sources of medical supplies imports are shown in table 3. Seventy-seven percent of all medical imports are accounted for by the top ten countries. Import are heavily concentrated in Mexico, Ireland, Germany and China. The US has four domestic manufacturers of ventilators though critical inputs and parts such as printed circuit boards are primarily sourced from China which is hindering attempts to ramp up their domestic production.

Modeling the Economic Impact of Reshoring

We modeled the effect of reshoring medical supplies by looking at the impact of returning to the level of imports of 2010, when imports were roughly half of today’s level. We used the REMI Policy Insight Model^[1] to estimate the impact on the US economy. We ran our model over a three-year period, 2020 through 2022.

We estimated a baseline case assuming real GDP growth of around 2 percent a year, a figure that represents a consensus figure before the onset of the coronavirus panic. The baseline model results are shown in Table 4.

To simulate the reshoring of imports of medical equipment by the amount of the increase in imports in this sector from 2010 through 2019, we reduce imports of these products and increase US production of medical supplies. We also adjust the cost of the new production to account for the trade-weighted cost differential of imports with US production.

We ran two simulations. In the first, we simulated the impact of reshoring COVID-19-related medical supplies to return to 2010 levels of imports. That involved a 45 percent reduction of last year’s imports of $30.8 billion to a new 2020 figure of $16.8 billion. We allowed both production and imports to rise gradually from the lower base, in keeping with demand, in subsequent years. The trade-weighted differential in production cost between imported and US production was 1.8 percent. In other words, US production is more expensive, but by less than 2 percent. Our cost estimates are based on the Boston Consulting Group’s 2018 Global Manufacturing Cost Competitiveness Index[2] and the Conference Board’s estimates of international comparisons of hourly compensation costs in manufacturing[3]. The cost differentials are small because some of the large sources of supplies include Germany, Ireland, and Switzerland, nations where manufacturing costs are similar or higher than the US.

In the second simulation, we looked at the broader category of total medical supplies including COVID-19-related and additional medical supplies. In that case, we reduced the total by 42 percent from $53.5 billion down to $30.8 billion. The results of both simulations are shown in table 3.

The impact of reshoring both COVID-19-related and total medical supplies is substantial. Table 5 shows the baseline forecast for each key economic indicator followed by the change to that indicator in each of the two simulations. In the COVID-19-related medical supplies simulation, real GDP rises by $22 billion with an additional 108,000 jobs added to the US economy. In the total medical supplies simulation, real GDP rises by $54 billion with an additional 302,000 jobs added to the economy.

In both simulations, inflation is boosted by less than 0.2 percent a year and remains comfortably in the 2%-3% range throughout the period. (One could argue that a boost to inflation is a good thing in times like these, with economic growth faltering.)  The trade deficit remains between $600 billion and $700 billion throughout the period in both simulations. As we observed in the pharmaceutical reshoring simulation a week ago, reshoring stimulates the US economy, leading to more imports, partially offsetting the direct reduction in imports from the reshoring. The improvement in employment and GDP in the reshoring case declines after 2020. We attribute this to the model’s conservative estimation of industry investment. In our view, a reshoring of billions of dollars of production would lead to further investment, generating larger gains in output and employment in future years.

In each reshoring simulation, employment rose strongly in the targeted sectors as compared to the baseline. In the first-year, employment in medical supplies rose by 9.4 percent or 69,940 jobs in the COVID-19-related medical supplies simulation. In the broader total medical supplies’ simulation, medical supplies jobs rose by 15.9 percent or 109,780 jobs.  As Table 6 shows, jobs in these categories all pay better than the average American full-time job. A simple average of all the sectors that benefit listed below yields a wage boost of 37.3 percent.

Source: BLS Occupational Employment Survey 2018

Reshoring Medical Supplies and Pharmaceuticals

Our report last week on the impact of reshoring pharmaceutical production and selected chemical inputs found that reshoring would increase employment by 804,000 and GDP by $200 billion. The combination of reshoring pharmaceutical production and medical supplies would yield an increase in total US employment of 1.1 million additional jobs and $254 billion in additional GDP.  Note that those 1.1 million jobs would in broad terms pay 37 percent better than the average American job.

The economic benefits are thus substantial. At times of national crisis like today, as we know from daily newspaper reports, increased availability of medical supplies and pharmaceuticals would also be measured in terms of lives saved. And of course, once we return to normal times, the nation would be much better prepared for the next public health crisis.

In the words of Dealmed’s Michael Einhorn: “This is a national security issue. We cannot be in a position where we’re at the mercy of other countries for vital supplies of medical equipment. When this is over, we have to study this and figure out a way to bring this production back home.”

Conclusion

US dependence on foreign imports of medical supplies and pharmaceuticals has precipitated a public health crisis as the nation tries to cope with the COVID-19 pandemic. Hospitals and other health care facilities are attempting to cope with shortages of supplies ranging from mundane rubber gloves to complex devices like ventilators. In a global crisis, the only reliable solution is to have the capacity to produce large volumes of essential supplies at home. We modeled the impact of reshoring a modest amount of medical supplies, some 42 percent or $22.8 billion worth of medical supplies. We found that reshoring that production would deliver a $54 billion boost to GDP and 304,000 additional jobs. The effects on annual inflation were less than 0.2 percent a year. When combined with our earlier exercise on reshoring vital pharmaceuticals, we found a larger boost to the US economy. Combined, the two studies show a boost to the US economy of $254 billion (or 11.6 percent) and a total of 1.1 million additional jobs created. Moreover these manufacturing jobs pay on average some 37 percent better than the average US job.

^[1] https://www.remi.com/model/pi/.

[2] How Shifting Costs are Altering the Math of Global Manufacturing (2018), Justin Rose, Ian Colotla, Michael McAdoo, and Will Kletter. Boston Consulting Group

[3] International Labor Costs: International Comparisons of Hourly Compensation Costs in Manufacturing and Sub-Manufacturing Industries, Update 2016. The Conference Board.