As the COVID-19 pandemic swept across the globe in early- to mid- 2020, one of the major headlines was the lack of PPE in American hospitals.

As the greatest economic power in the world, why couldn’t the United States provide its frontline workers with the personal protective equipment (PPE) that they needed in order to stay safe in the early days of the COVID-19 pandemic?

The answer goes back several decades, and uncovers a fascinating and disturbing aspect of American policy.

The 1990s: Setting the Stage

Much of the American manufacturing industry began to move overseas in the 1990s, beginning a trend that continued in the following decades. The US has lost nearly 5 million manufacturing jobs and 91,000 manufacturing plants since 1997, according to research from the Economic Policy Institute. That’s about 25% of all manufacturing jobs.

Manufacturing supply chains have followed this trend. For example, in the early 2000s, two of the largest American medical manufacturers, Honeywell and Kimberly-Clark, shifted most of their PPE manufacturing lines to China. And the numbers today still reflect that reality. A full 90% of America’s antibiotics are sourced overseas, along with 75% of its acetaminophen. More to the point, 48% of American PPE in 2019 originated in China, including 95% of our surgical masks, 97% of our plastic gloves, and 70% of our N95 respirators. Fortunately, most nitrile and latex gloves are manufactured outside of China.

The main reason for moving any supply chains abroad—not just PPE supply chains—is cost reduction. The price of labor in the US is much higher than it is overseas. In fact, US manufacturing costs generally run about 20% higher than in Europe, and about 40% higher than in China and countries with similar labor costs.

America is also highly regulated and highly taxed. Corporate has many regulations, as well as higher corporate tax rates averaged (35% until 2017. The rest of the world averaged , compared to around 22% in the rest of the world). The US also does not include value-added taxes (VAT) like other countries do, which would make manufacturing here more appealing. 

Another component is the fact that the US lacks engineers and similar trades related to skilled manufacturing, so the jobs that don’t get offshored to cheap labor markets still get sent to other countries that can handle the more challenging positions.

PPE has been no exception to this trend. As a low-margin good that can be produced in mass without violating intellectual property, it is easily offshored.

The ‘90s was also the decade that the “just-in-time” management strategy was becoming widespread in the US.  Originating in Japan, this strategy was used by Taiichi Ohno of Toyota, who decided to order equipment in smaller increments, cutting down on excess inventory and making manufacturing more efficient. When applied to PPE, however, that meant that hospitals and other medical providers purchased just the amount of PPE that would be necessary for 15-30 days. If the supply chain was disrupted, these supplies would arrive just a few days before they were needed. Healthcare providers allowed for this by buying temporarily from a different supplier if they were in a crunch.

2000-2010: The Strategic National Stockpile

While Congress established the Strategic National Stockpile (SNS) in 1999, it was originally limited to vaccines. In 2000, it was expanded to include all emergency equipment, including PPE. The SNS, which is a network of warehouses located across America, was supposed to provide the country with enough medical supplies in case of an emergency, such as a natural disaster or a biological attack from a foreign country. By the late 2000s, the SNS’s annual funding was $700 million, allowing for the upkeep of the facilities and the purchase of new supplies as needed. 

Healthcare providers believed that they could rely on the SNS in the case of a pandemic as well. Unfortunately, the SNS was only designed as a short-term solution to a single event—not to sustain the healthcare industry in the case of a prolonged crisis.

Even after a slew of potential pandemics arose—the H5N1 virus in 1997, the SARS virus in 2003, the Swine Flu in 2009, MERS in 2012, and Ebola in 2015—the preparedness response did not adequately change. Reports from the Department of Homeland Security explained the federal government’s responsibility in streamlining a pandemic response, including equipment distribution, but no one actually took the steps to coordinate this response or explain what it might entail.

Even as far back as 2006, it seems that PPE shortages were expected. That’s when the National Institute for Occupational Safety and Health (NIOSH) commissioned a report that shone a light on highlighted the system’s lack of PPE preparedness in the case of an influenza pandemic. By 2009, the SNS contained almost 90 million N95 respirators, which would still not be enough in the case of a pandemic, but would give the country time to manufacture more.

2010-2020: Depletion of PPE

When the H1N1 epidemic hit in 2009/2010, and soon afterwards, the SNS distributed most of its inventory. By the time 2020 rolled around, it was left with fewer than 25 million respirators and 20,000 ventilatoors, far below the number required.

In 2018, the US placed tariffs on goods manufactured in foreign countries, specifically China. This would madeke it even more difficult for US healthcare systems to obtain PPE cheaply from foreign countries during the pandemic. Not only that, but many hospitals depleted any existing PPE stockpiles even before the pandemic began, when new tariffs forced them to do so in an attempt to minimize their expenses.

While some companies did begin to reshore in response to these tariffs, the PPE industry was not included in this trend. After all, PPE was still a commoditized good, which meant that it was still worthwhile to produce it cheaply in China, rather than manufacture it at home in the US.

2020: Enter…COVID-19

In January of 2020, American manufacturers of PPE saw the writing on the wall and began boosting production, but years of offshoring in the industry meant that they only made a dent in the increased demand. After all, when the pandemic began, China was producing about half of the world’s disposable masks.

A month later, the Chinese government ordered its PPE manufacturers to discontinue all PPE exports so that China would have sufficient supplies. Even before COVID-19 officially arrived at American shores in March, the US was already experiencing a major PPE shortage.

The rest is history. The US struggled through most of the pandemic with a dearth of PPE, leaving its citizens shocked at the lack of preparedness of the Federal government and the healthcare system. 

This is the first in a series of three posts about the PPE crisis of 2020. The second post will examine reshoring, one of the foremost strategies currently under consideration to prevent a recurrence of this type of crisis. The third will discuss other strategies that would be necessary in conjunction with reshoring.

Written by Robert Brown