The Trump administration's tariffs will make it more expensive and difficult for General Motors to import the parts to build 30,000 critically needed ventilators for American hospitals.
In a deal struck last week, the federal government will pay GM $489 million to manufacture 30,000 ventilators in partnership with Ventec, a medical device maker. Ventec will provide the designs and GM the manufacturing muscle; the first shipment of 6,000 ventilators is expected to be ready by later this month.
But the anti-China tariffs have already emerged as a complicating factor.
"To meet the needs of the U.S. government, U.S. medical professionals, and U.S. patients in this time of crisis, GM is drawing upon its established global network of suppliers and its supply chain expertise to secure these critical components," Craig B. Glidden, general counsel for General Motors, wrote to the Office of the U.S. Trade Representative on March 31, shortly after the company and the administration had begun discussing plans to manufacture more ventilators.
Building a ventilator is complicated. More than 700 components are needed to assemble one, Glidden wrote, and GM would have to draw upon "established suppliers" in China to provide some of those parts.
The administration's China tariffs, Glidden wrote, could "impede the ability of GM and other U.S. manufacturers to source parts for critical care ventilators quickly, reliably, and at as reasonable a cost as possible."
In mid-March, the administration quietly took action to lift tariffs on medical devices and equipment imported from China. As part of that process, the Office of the U.S. Trade Representative opened a special docket on March 20 to let American companies seek relief from other tariffs in light of the COVID-19 outbreak. The public comment period runs through June 25.
General Motors is one of dozens of companies to have submitted requests. The Wall Street Journal reports that the list of requests comes from a wide range of businesses who say "tariffs are hitting chemicals, equipment, parts for devices and other items needed in the fight against coronavirus, but which may not be readily identifiable as medically related." GoPro, for example, says its camera equipment can be used to teach doctors how to use ventilators. Energizer Holdings Inc. says its batteries are needed to power medical devices.
The rationale for the tariffs has been to encourage manufacturers to move out of China and bring jobs back to the United States. "If we made it here, we wouldn't be faced with this," Peter Navarro, Trump's top trade advisor and a longtime China hawk, told 60 Minutes last night when asked about ventilator shortages.
But the tariffs haven't been a boon for American manufacturing. And even if they were capable of redirecting global trade on a larger scale, self-sufficiency wouldn't necessarily be desirable. Diverse supply chains based in a variety of places around the world are more stable and resilient.
"Self-sufficiency is not an option for any country. It's not an option even for any continent," Sabine Weyand, the European Commission's director-general for trade, said last week.
And the time to play games with global trade flows is certainly not in the middle of a pandemic. In a request for tariff exemptions, Home Depot points out that companies cannot quickly identify new sources of products like thermometers, which are suddenly in high demand in America and around the world.
"Under the current health crisis, the protracted time period needed to identify and fully vet a new non-Chinese supplier would serve to undermine U.S. interests and impose an additional burden on the health care system by delaying access to supplies needed to treat and reduce the spread of COVID-19," notes Home Depot's request. "The additional costs associated with applying a tariff…would cause an increase in cost throughout the supply chain."
When it comes to making ventilators, General Motors' request identifies a number of industrial components that the company should be exempted from tariffs, including certain types of gaskets, filters, and compressor silencers.
It should be obvious that the response to a public health emergency will require goods that aren't, strictly speaking, medical equipment. But then, it should be obvious that tariffs are a poor way to redirect global trade, since they mostly punish American importers, businesses, and consumers.
On both counts, the administration's trade policy has been a disaster. President Donald Trump's tariffs probably reduced the ability of hospitals and other medical providers to stock up on crucial gear before the coronavirus pandemic. When those trade barriers were imposed in 2018, medical professionals warned the Office of the U.S. Trade Representative that the levies were counterproductive and would harm America's preparedness for a public health crisis.
The administration waited until mid-March to lift those tariffs. As GM's (and other companies') exemption requests demonstrate, cutting tariffs for medical gear doesn't go nearly far enough to help American companies respond effectively to the pandemic.
The president is finally getting a serious lesson in the costs of his tariff regime. His response has been too little, and too late.