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Biden Administration Should Reconsider New Contradictory Trade Policy

When discussing the policy objectives of the former Trump administration, it would be remiss not to mention the infamous Section 301 tariffs. In 2018, former U.S. Trade Representative (USTR) Robert Lightzinger determined, pursuant to an investigation under Section 301 of the Trade Act of 1974, “that China’s acts, policies, and practices related to technology transfer, intellectual property (IP), and innovation were unreasonable or discriminatory and burdened or restricted U.S. commerce.” To counter such seemingly harmful practices, the Trump administration employed Section 301 to impose four rounds of increased tariffs on U.S. imports from China.

These tariffs increased the costs paid by Americans for Chinese imports by hundreds of billions of dollars and greatly harmed American producers who used imported Chinese capital equipment and inputs to satisfy the demands of their customers. To mitigate some of these adverse consequences, Lighthizer introduced an “exclusion process” to allow Americans to request that specific goods be exempted from Section 301 tariffs. In 2020, USTR issued a variety of exclusions for medical-care devices. These policies proved valuable during the COVID–19 pandemic and enhanced the ability of firms in the medical industry to account for the uptick in the demand for medical equipment.

It is worth noting, however, that the process associated with requesting for a tariff exclusion is a bureaucratic one that imposes disproportionate compliance burdens on small businesses. According to a 2019 NTUF issue brief on the tariff exclusions, the “USTR failed to account for the amount of time and energy required to fill out an exclusion request for small businesses, without the consultation of expensive trade lawyers, dramatically underestimating the costs.”  Despite these administrative and legal costs, countless organizations have issued submissions highlighting just how burdensome Section 301 tariffs are.

Below are some of the more notable testimonies from U.S. companies about how Section 301 tariffs affect the healthcare system:

  • Peter Larson from Klarity Medical Products LLC: “The tariff would substantially increase our U.S. cost of these products as well as the prices paid by U.S. hospitals who use these products… the price to hospitals would increase substantially.”
  • Aaron Winters from Medline Industries: “There is not enough existing capacity to move production outside of China ... continuing the exclusion is vital to prevent additional inflationary healthcare pressures.… We estimate the total impact of just the potentially expiring COVID exclusions would cost the average hospital (including safety net and critical access hospitals) more than $160,000 a year.”
  • Patricia Carvalho from Draeger Medical Systems Inc.: “Our products represent the last best hope to survive for people who can no longer draw a life-sustaining breath. The disposable plastic filters imported by Draeger are used with ventilators, anesthesia machines, and open flow systems where filtration of inspired or expired gasses is required. Sourcing these goods from new suppliers outside of China would require significant time and investment to ensure that any new suppliers and subsequent production of product fully complies with FDA requirements.”

In a statement released on May 24, current USTR Katherine Tai announced “the further extension of certain exclusions” through May 31, 2025. These exclusions apply to medical goods including blood pressure monitors and fingertip pulse oximeters. Unrenewed exclusions have been extended by an additional two weeks to June 14, 2024 to allow for a smoother transition.

In contrast to the extension of exclusions for certain medical goods in order to help meet U.S. needs, on May 14 Tai announced new Section 301 tariffs on goods including medical gloves, facemasks, and syringes and needles.

It seems arbitrary and counterproductive to increase Section 301 tariffs imposed on medical goods like facemasks, medical gloves, and syringes one day and then to exempt other medical goods from Section 301 tariffs 10 days later.

While certainly an admirable objective in the wake of rising tensions between the United States and China, the costs of repealing Section 301 exclusions and imposing new tariffs far outweigh their benefits. The Biden Administration should reconsider whether a tariff policy that is unlikely to significantly diversify supply chains is worth imposing additional upward pressure on healthcare costs. The Biden Administration should instead explore alternative policies like the stockpiling of critical supplies which may prove to be more effective in diversifying supply chains and less costly to Americans.