The COVID-19 pandemic exposed significant vulnerabilities in global supply chains, challenging long-standing beliefs about the security of cross-border trade. For all its benefits from low labor costs to tax advantages, cross-border trade has the potential to create overdependence on foreign assets.

The reliance upon critical goods such as pharmaceuticals, personal protective equipment (PPE), medical devices, and medical equipment has proven to add significant stress to supply chains in times of crisis.

On May 14, 2024, the federal government announced a significant increase in tariff rates on medical supplies. Syringes and needles will see tariffs rise from 0% to 50%, while tariffs on personal protective equipment, such as specific respirators and face masks, will jump from 0-7.5% to 25% in 2024. Rubber medical and surgical gloves will face a similar hike from 7.5% to 25%, but not until 2026. According to the federal government, these tariff increases aim to strengthen the U.S. medical supplies industry, which proved critical during the COVID-19 pandemic. Given these changes, it is logical for domestic companies to explore U.S.-based manufacturing as a strategy to avoid supply chain disruptions and rising tariffs.

  Transitioning supply chains back to the U.S. (‘repatriation’) demands a comprehensive risk assessment across multiple areas, including geographic, political, and financial factors. As companies weigh the benefits of U.S.-based manufacturing, understanding the full scope of these risks and costs becomes essential.

Understanding Supply Chain Disruption

The bulk of the negative supply chain impact faced during COVID-19 was due to supply-side contagion. This happens when one key supply chain operator experiences supply chain disruption, and that disruption “contagiously” impacts other supply chains.

However, supply-side contagion is just one aspect. Demand-side contagion occurs when demand decreases in one region, leading to a ripple effect that affects global suppliers. Lastly, supply chain re-infection can occur when Country A, just emerging from disruption, faces new challenges as Country B enters economic uncertainty or export restrictions, further reversing recovery efforts.

The heavily connected and wholly globalized supply chain is heavily reliant on certain critical manufacturing centers. When one goes down, cascading effects flow downstream. Seventy-three percent of companies experience supply-side contagion during the pandemic.

These effects extend beyond pandemics. Political tensions, trade disagreements, tariffs, terrorism, maritime attacks, and acute climate events can all cause significant disruptions in concentrated areas.

The Motivation for Considering Supply Chain Repatriation

Only 28 percent of API manufacturing facilities supplying the U.S. are based domestically. In fact, China accounts for over 95% of ibuprofen, 70% of acetaminophen, 45% of penicillin, and 40% of heparin imports. This already causes issues in terms of supply chain efficiency for healthcare providers.

According to McKinsey, pharmaceuticals have an average manufacturing lead time of 120 - 180 days. Compared to consumer goods (which have a lead time of around 3 - 7 days). With long lead time we risk shortages that can lead to impacts on life-saving treatments, surgeries, and emergency care. Repatriation involves bringing critical healthcare manufacturing needs back to the United States. It is not a call for isolationism or anti-globalization. It is a risk mitigation response to globalization’s inherent flaws.

Ideally, repatriation would target critical drugs and devices essential for emergency response, rather than aiming for a full shift to domestic manufacturing. This selective approach would prioritize items most vulnerable to global supply chain disruptions, ensuring a steady domestic supply during times of crisis.

During the first height of the pandemic in March 2020, Chinese pharmaceutical manufacturers told state media — in an effort to prevent shutdowns from impacting their plants — that any logistics disruptions would cause the global API supply to drop by 20 percent. There is at least some truth in that statement. However, it is hard to ascertain whether the statement is entirely true. No one knows exactly how deeply intertwined API-pharma relationships are in the United States.

We do know the United States has rapidly outsourced a significant chunk of its critical healthcare supply chain needs. A Washington Post article details Anqiu Lu’an Pharmaceutical Co. in China’s Shandong province — which is solely responsible for a quarter of the global acetaminophen demand (40,000 tonnes). Two decades ago, the United States was the leading provider of acetaminophen.

To be clear, repatriation is not a political stance against globally connected supply chains.

While repatriation strengthens domestic access to critical supplies, it is not always the solution. For example, certain highly specialized pharmaceuticals or complex medical devices may require sophisticated, high-cost production environments and long lead time to set up domestically. For these products, building or modifying facilities in the U.S. might be expensive or take years to achieve, during which global suppliers might remain the most practical option.

By carefully choosing which essential products to repatriate, the U.S. can reduce its vulnerability to global disruptions without compromising the advantages of global supply networks.

Should your company consider repatriation?

Repatriation is not a one-size-fits-all solution; it requires careful analysis of factors that affect each company's unique supply chain. Key considerations include:

• Tariff structures

• Government-driven incentives

• Sourcing and distribution agreements

• Environmental restrictions and rules

• Access to API manufacturing equipment and feasibility of acquiring said equipment

• Data usage architectures

• Market exposure

• Sanctions

In addition, companies must measure self-reliance against resiliency. They do not always go hand-in-hand.

For example, a drug that receives API inputs from multiple countries and suppliers is relatively resilient. It has multiple trade flows to depend on during a shock. If America repatriates those APIs, it now only has one point of impact. In the case of COVID-19, if that manufacturing plant had an outbreak, the entire trade flow of that drug would be halted.

Alternatively, repatriation can increase both resiliency and self-reliance. If an API is primarily sourced from a single country, repatriation increases resiliency by default. Ultimately, a complete risk analysis is necessary to determine whether repatriation increases resilience and aligns with long-term value creation, especially when favorable incentives or sanctions are involved.

Increased Self-Reliance and Increased Resilience

Repatriation is critically valuable in situations where the entire flow of goods originates from one foreign supplier. For instance, China is the only manufacturer of capreomycin and streptomycin: two APIs used to treat Mycobacterium tuberculosis.  Repatriating production of these APIs would decrease the risk of supply-side contagion and offer greater flexibility to meet demand-side shifts. For companies that source 80% or more of critical supplies from one country, repatriation may mitigate supply risks given the supply-side tooling. Alternative sources may not be able to tool up and meet demand in crisis scenarios.

Additionally, self-reliance and resilience are tied to liquidity and incentives. There are multiple examples of multi-million-dollar contracts awarded by the government to bring APIs back home. Currently, there are many legislative proposals on the table for repatriation of the supply chain, including:

• Manufacturing API, Drugs and Excipients (MADE) Act

• Pharmaceutical Independence Long-Term Readiness Reform Act

• Protecting our Pharmaceutical Supply Chain from China Act

• Strengthening America’s Supply Chain and National Security Act

The passage of any one of these acts could increase both resiliency and self-reliance, depending on the scope and level of incentives provided.

Regulatory Bandwidth as a Barrier to Repatriation

With multiple legislative proposal acts in motion, over 150 trade-related restrictions relating to medical goods, and the lingering impacts of the pandemic, repatriation is a hot-button topic that has regulators on the edge of their seats. However, the regulatory bandwidth required for repatriation is extensive, posing a significant challenge.

Regulatory affairs teams are already fully occupied, and repatriation adds a new layer of deliverables with strict timelines and complex regulatory demands. These regulatory requirements include:

• Facility Compliance: Retrofitting or repurposing equipment and facilities to align with FDA guidelines.

• FDA Registrations: Securing new or updated FDA registrations for manufacturing operations.

• Filings and Documentation: Preparing updated filings to ensure compliance with U.S. standards.

• Quality Management Systems (QMS): Implementing or revising QMS protocols to maintain product quality across domestic production.

• Risk Management: Establishing risk control measures to ensure supply continuity and regulatory compliance.

This means any supplier interested in repatriation has a large influx of temporary regulatory burdens to tackle, which do not justify full-time hires. The repatriation effort requires expertise in supply chain management, as well as QMS remediation, risk mitigation, regulatory strategies, and supply chain readiness.

Additionally, effective repatriation requires a dual-regulatory approach. Expertise is necessary not only domestically but also in the supply-side country to handle the complexities of cross-border transitions smoothly. Temporary partnerships with consultants or specialized firms can help navigate these regulatory landscapes without overextending internal resources.

Solving the Regulatory Bandwidth Problem: How Medpoint Can Help

From digesting risk requirements and government incentives to understanding the full scope of your supply chain, repatriation is a full-scale effort that requires deep insights and plenty of expertise. To navigate these challenges, you need a team with broad expertise across multiple regulatory arenas and regions. Medpoint provides access to a global network of experts with experience in supply chain repatriation and regulatory requirements. Whether a turnkey solution or supplemental services are needed, Medpoint can connect you with the right experts.

We have 200+ technical advisors service the US, European, Asian, and Latin American markets on standby. We are an ISO 9001: 2015 certified agency that brings tangible expertise to your doorstep. From QMS remediation to full-scale repatriation, Medpoint gives you people and resources you need to transform. Leading Expertise Serving Your Global Needs

Edited by Gina Rivard, Recruiter and Staff Project Coordinator 

References

1. The White House. "FACT SHEET: President Biden Takes Action to Protect American Workers and Businesses from China’s Unfair Trade Practices." WhiteHouse.gov, https://www.whitehouse.gov.

2. Supply Chain Dive. "Coronavirus Supply-Side Disruption." Supply Chain Dive, https://www.supplychaindive.com/news/coronavirus-supply-side-disruption-Resilience360-Business-Continuity.

3. U.S. Food and Drug Administration. "Safeguarding Pharmaceutical Supply Chains in a Global Economy." FDA.gov, October 30, 2019. https://www.fda.gov.

4. POLITICO. "U.S. Policymakers Worry About China 'Weaponizing' Drug Exports." POLITICO, https://www.politico.com.

5. "Strengthening Health Care’s Supply Chain." [PDF file]. Example Source, https://www.example.com/Strengthening-health-cares-supply-chain.pdf.

6. The Wall Street Journal. "Pandemic Lays Bare U.S. Reliance on China for Drugs." The Wall Street Journal, https://www.wsj.com.

7. 117th Congress. "Strengthening America’s Supply Chain and National Security Act." Congress.gov, https://www.congress.gov/bill/117th-congress/senate-bill/4565.

8. PMC. "The Production and Sales of Anti-Tuberculosis Drugs in China." PubMed Central, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC.

9. 117th Congress. "Manufacturing API, Drugs, and Excipients (MADE) Act." Congress.gov, https://www.congress.gov.

10. 117th Congress. "Pharmaceutical Independence Long-Term Readiness Reform Act." Congress.gov, https://www.congress.gov.