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U.S. Policymakers Look to Limit Reliance on Manufacturing in China

May 29, 2020

By Tom Best, Derek Turnbull

On April 3, 2020, in response to a critical shortage of personal protective equipment (PPE) in the United States amidst the evolving public health crisis brought on by the COVID-19 pandemic, the U.S. Food and Drug Administration (FDA) issued an Emergency Use Authorization allowing the importation of certain N95-style respirators manufactured in China.

  Previously, these masks had not been authorized by U.S. regulators for importation as approved medical devices, as N95 masks must adhere to strict standards on effectiveness and many manufacturers in China, though prolific producers of respirators, did not technically produce approved N95s.  By the end of April, more than 74 manufacturers had made the list approved for producing N95-style masks and millions of respirators produced by those companies began to flow into the U.S.  On May 7, 2020, however, the FDA pulled its list of authorized producers and re-issued a revised list with just 14 manufacturers named, severely restricting the flow of new PPE from China.

What happened in the interim?  Just days earlier, the Wall Street Journal had published a story on findings by the National Institute for Occupational Safety and Health (the federal agency responsible for propagating N95 respirators’ qualifications) that 60% of 67 types of imported masks had at least one sample tested which failed to meet the standards normally required of N95 masks.  While N95s must normally block out 95% of small particles, one sample tested came in below 15% effectiveness, despite markings designating it as a KN95 (China’s approximately equivalent version of the N95 mask) – below even the effectiveness levels found for some cloth masks.

The FDA’s reversal may provide a warning for companies with Chinese supply chains regarding broader changes to come.  It builds, after all, on a narrative regarding the quality of Chinese-made products long in the making, and follows on the heels of a series of pandemic-related scandals in Europe with faulty imported COVID-19 tests having to be returned to their manufacturers in China.  In March,

on the Czech Republic’s delicate dance in deferentially thanking the Chinese government for its assistance in obtaining 300,000 rapid-acting tests for the virus which turned out only to work days after many patients would already have become contagious, with approximately one third of the tests not even doing that properly.  50,000 test kits were returned by Spain, one of the countries experiencing among the worst outbreaks in the world.  The reputational damage of mounting problems around tests and PPE led the Chinese government in early April to on PPE exports, requiring Chinese government inspections and approval before companies could continue exporting certain PPE products.

Negative coverage of “Made in China” products has been seen before.  In 2007, the

the significant number of children’s toys recalled after the factories where they were produced in China were found to be using lead paint and other dangerous materials.  And product quality issues have frequently been in the news in China, from the in the wake of the to the more recent .  Indeed, the Chinese government acknowledges the problem and its recent restrictions on PPE exports are purportedly in part to limit the international reputational damage of faulty product exports.  But the coronavirus pandemic may have brought these issues to a head in many parts of the world, and U.S. authorities in particular – regardless of apparently more effective Chinese manufacturing regulation – may be seizing their chance to limit the importation of a variety of Chinese manufactured goods across a number of industries.

The FDA has not acted alone in recently imposing additional trade barriers on Chinese goods.  Days before the FDA’s abrupt rollback of its Chinese PPE approved manufacturer list, the White House

order banning the purchase of certain power grid components from suppliers owned or controlled by, or subject to the jurisdiction of, “foreign adversaries” – a move generally seen as directed at halting the use of Chinese or Russian-supplied parts in the power grid.  Meanwhile, even as certain tariffs introduced on Chinese imports in 2018 and 2019 remain in place following the signing of the Phase I trade deal in January, in connection with the coronavirus crisis.  And on May 14, the White House giving new powers to the International Development Finance Corporation – the U.S. overseas investment agency – to help foster domestic U.S. supply chains and manufacturing relevant to responding to the pandemic, a move widely seen as looking to reduce U.S. dependence on (among others) Chinese supply chains for critical goods.  Then on May 19, the administration announced that the Biomedical Advanced Research and Development Authority had to develop domestic production of a number of medicines and their precursors, including but not limited to drugs relevant to the pandemic.  Administration officials reportedly billed the contract as part of a wider effort to bring pharmaceutical manufacturing stateside on a broader scale.

As the crisis wears on, one should not be surprised as the U.S. government seizes further opportunities to restrict trade with China, and companies around the world should be cognizant of the risks these circumstances pose to their supply chains.  The simultaneous erosion of confidence in certain Chinese-made goods and apparent deterioration in U.S.-China relations may accelerate a shift that was already occurring in the trade relationship between the world’s two largest economies.  While the exact outcome of this dual crisis – and, indeed, what the world will look like as the virus subsides – remains in doubt, the trend in a U.S. pullback in purchasing from China appears clear.  As part of the real-time assessments of risks many companies are doubtless undertaking in light of the pandemic’s business disruptions, companies across industries selling into the United States would be wise to plan for prolonged disruptions to any portion of their supply chains originating in or passing through China.  The cessation of the pandemic may not result in an immediate cessation of trade hostilities, and while much attention has been paid to increasing U.S. export controls directed at China, America’s importation restrictions are also expanding and may have similarly long-lasting effects.  With PPE and power grid components in the U.S. government’s sights today, steel, plastics, or other products or parts could become targets tomorrow, and any company might benefit from having a contingency plan in place.


“Respirators,” also sometimes called respirator masks, are masks designed to create airtight seals or fit closely to the face and efficiently filter out tiny airborne particles.

Contributors

Image: Tom Best
Tom Best
Partner, Litigation Department
Image: Derek J. Turnbull
Derek J. Turnbull
Associate, Litigation Department