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Changes to legislation will incentivize companies to bring drug production back to U.S.: Eurasia Group Director

Eurasia Group Director of Global Strategic Analysis Caitlin Dean discusses the reasons why the U.S. depends on foreign healthcare supplies.

Video Transcript

JULIE HYMAN: --news, we continue to watch the struggles with getting good medical supplies from abroad here to the US as we need them amidst the coronavirus pandemic. Joining us now is Caitlin Dean. She is Eurasia Group Director of Global Strategic Analysis. She's joining us from New York.

And one of the latest headlines with this has to do with the company Kodak getting a $765 million loan from the US government to produce some of the raw materials for pharmaceuticals here in the US in-- in New York state. Separately, there is a probe into disclosure of that loan, but we'll leave that aside for a moment, Caitlin, and talk about the issue at hand.

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What is the-- you recently authored a report on this. What is the best way to bring supply chain into the United States? Is it to tap companies like Kodak to expand their operations, or what's the best way to attack it?

CAITLIN DEAN: Well, I think looking at sort of the big picture and how we got here, there are a number of-- of pretty simple reasons why most of our medical supplies and our pharmaceuticals are produced abroad, and the most basic one is cost. It costs 30% to 40% less to produce Active Pharmaceutical Ingredients, or APIs, in China versus what it would cost in the US or the EU.

There are also a number of-- of tax reasons why so much of pharmaceutical, development sort of R&D and production have gone overseas. So it's going to take a lot of different types of incentives or changes to our-- our legislation in order to get-- incentivize companies to bring some of that production back. It's also not going to be anything that we can really change large scale in the short term.

Some experts have-- experts have estimated that it's going to take one to two decades to even bring back 50% of pharmaceutical production back to the US, so to produce 50% of the-- of the drugs, we would need here in the United States. So one of the main issues we looked at in the report is the tension between these two competing forces.

On the one hand, for-- for social and political reasons, for nationalist or protectionist reasons, but also for the reasons you described that we simply need a lot of these-- of these items, both equipment and pharmaceuticals in the US, there's a lot of pressure to-- to bring back some of that production here to the US, and to the EU, and to Japan. But the economic reality of it is it just isn't that easy.

MELODY HAHM: Yeah. Caitlin, you really [INAUDIBLE] that quite well. Ian Bremmer, of course, of Eurasia Group has joined us very early on in the pandemic saying that decoupling was going to be a reality between the US and China. But as you point out, it's much harder in actuality than perhaps rhetorically. That's what America would love to see.

Initially, we did see the Honeywells, the 3Ms kind of in their headquarters in the United States, saying, hey, we're going to be making masks. We're going to be making some of the supplies. And that created round of applause from people like President Trump. Do you feel like that's sustainable? You know, outside of pharmaceuticals, which I think is much more complex, is that here to stay? Are those trends just a fleeting phenomenon? Post-pandemic, we won't be seeing that sort of investment here?

CAITLIN DEAN: I think those are going to be sort of short-term, one-off fixes. The US isn't the only country that took actions like that in the onset of the pandemic. We saw countries as diverse, you know, regionally and in terms of size as-- as Russia, Kazakhstan, India, the European Commission all trying to implement some form of export controls to keep the-- the supplies that they had in their country within their borders.

But that-- that creates a whole host of new problems. So that creates shortages in areas that don't have the supplies. It increases prices across the board. And it can in some cases fray trading relationships between the countries who are supposed to be exporting the materials and the countries who aren't.

So we think that was sort of an emergency Band-Aid that a lot of countries had-- had tried doing in the beginning of the pandemic. But the truth is we never know exactly what we're going to need for the next emergency. And so the way that-- we're going to need to realign some of our supply chains in health care and in other industries, but it is going to be a much slower, longer-term fix.

ADAM SHAPIRO: When you were talking about 50%, how long it would take, I was curious how long would it take maybe to get even that-- to that kind of metric.

CAITLIN DEAN: Yeah. It was-- the number that we had cited is that it would take about one to two decades to produce 50% of the-- of the-- excuse me-- of the pharmaceuticals we need in the US. So one to two decades to reshore that much. And that's not saying that we will. That's just saying that it would take such a long time even if we were to decide to try that.

JULIE HYMAN: Caitlin, thank you. Interesting analysis there. Caitlin Dean, Eurasia Group Director of Global Strategic Analysis, appreciate it.