• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • SCB YouTube
  • Login
  • Subscribe
  • Logout
  • My Profile
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management (Big Data/IoT/Blockchain)
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Supply Chains in Crisis
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • THINK TANK
  • WEBINARS
    • On-Demand Webinars
    • Upcoming Webinars
    • Webinar Library
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » Blogs » Think Tank » As Trade War Continues, Pharma Companies Prepare for Alternatives

Think Tank
Think Tank RSS FeedRSS

As Trade War Continues, Pharma Companies Prepare for Alternatives

As Trade War Continues, Pharma Companies Prepare for Alternatives
November 12, 2019
Bill Connell, SCB Contributor

The trade standoff between the U.S. and China has yet to seriously impact the pharmaceutical and life sciences industries. But as neither side shows signs of backing down, and tariffs continue to be levied on virtually every segment, those sectors are preparing for a major supply-chain disruption.

The most recent round, in which a new tranche of tariffs on an additional $300 billion in Chinese imports is threatened, will include nearly all products from China not currently subject to tariffs. There are likely to still be a few exclusions, including pharmaceuticals, pharmaceutical inputs, and some medical goods.

While retail and consumer electronics will feel the impact most immediately, the pharma industry’s reprieve might well be short-lived. Analysts are concerned that pharmaceuticals might ultimately fall into the tariff trap, especially given that many products that were originally excluded are now covered under new tariffs. China has several ways it can retaliate — most recently by devaluing the yuan — and has threatened to restrict access to rare earth elements, which are often used in electronics and come primarily from China. China might also choose to retaliate, if pushed to do so, by leveraging its position in American pharma.

The greatest concern isn’t the importation of manufactured pharmaceuticals, but rather the importation of active pharmaceutical ingredients (APIs). China dominates the global API market, and many such ingredients are produced exclusively there.

The U.S. Department of Defense has already noted that this risk “cannot be overstated,” and could pose a threat to the health of military personnel. It might be possible in the long term to re-source those ingredients, but doing so presents logistical challenges, would require lengthy negotiations with unproven sources and additional layers of compliance and testing, and would almost certainly cause a years-long drug shortage throughout the entire U.S. healthcare system.

While that hasn’t happened yet, the government, military and pharmaceutical industry have all acknowledged the extreme risk involved. Pharma must prepare.

Rumblings from Beijing have begun, and some Chinese economists have already suggested that curbing exports of raw materials for vitamins and antibiotics would make a very effective countermeasure in the trade war with the U.S. At the same time, China is opening the door to a new Asia-Pacific free-trade zone (the Regional Comprehensive Economic Partnership) to pick up the slack from falling U.S. exports, which would include the ten ASEAN countries plus Australia, China, India, Japan, New Zealand and South Korea. Such a deal would be especially useful in opening up the India-China trade for pharmaceuticals and APIs.

As with any type of manufacturing, pharm production involves a far-reaching supply chain with multiple partners. That includes providers of APIs, which are often in China, as well as outsourced manufacturing partners, often in India. Regardless of location, the natural tendency of supply-chain and procurement professionals is one of resistance to change. And when regulations and compliance oversight comes into play, changing any point in the supply chain can be both time-consuming and logistically challenging. A protracted trade war could give India a greater opportunity to extend its influence and fill the gap that would be created if U.S. companies were to cut China out of the supply chain. Indian companies are almost surely looking at an opportunity to fill the void.

One potential interim solution would be to follow a path of “tariff engineering,” with the most immediate option being a move to India as an alternative supplier of APIs. However, doing so would yield limited benefits. India still depends on China for most of its APIs, and a move to India would simply make that country into an intermediary, raising the price of drugs sold in the U.S.

A “right-first-time” approach to pharmaceuticals manufacturing is essential to product safety. It involves ensuring optimal supply chain performance, and guaranteeing that outsourced manufacturing, as well as raw ingredients, meet rigorous standards. India has not yet quite measured up to China in terms of product safety, and in 2017, China joined an international body to determine quality specifications for the U.S., Europe and Japan.

Repercussions could range from higher prices to shortages and new challenges in the compliance pipeline, as pharmaceuticals manufacturers are forced to look to new suppliers. Three critical steps to take in preparation include:

  • Reinforce internal processes to ensure that should new suppliers become necessary, they will be compliant with both internal manufacturing protocols as well as FDA compliance mandates.
  • Anticipate and prepare for higher costs. Re-sourcing key APIs that traditionally come from China is likely to result in higher costs for consumers. Companies can take two steps to mitigate this inevitability: a public relations outreach program to prepare consumers in case of rising prices, and an internal look at other operational processes, to determine whether costs can be cut elsewhere without disrupting quality levels and delivery schedules.
  • Take a critical look at the global supply chain as it currently exists. An inventory of all suppliers, and analysis of potential risks that could result from trade disruption, is in order. While re-sourcing might not be immediately necessary, now is the time to seek out alternatives so a backup supply chain can be in place should a primary source become too expensive or unavailable.

A prolonged trade war could cause lasting disruption to pharmaceutical manufacturing supply chains, severe shortages of life-saving treatments, and rising consumer prices. Pharmaceutical companies must take action now to ensure they are prepared.

Bill Connell is a principal at Tunnell Consulting.

Global Trade Management Global Trade & Economics Pharmaceutical/Biotech

RELATED CONTENT

RELATED VIDEOS

Subscribe to our Daily Newsletter!

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • A MAN IN A SUIT SHAKES HANDS WITH A WOMAN IN A HARD HAT, NEXT TO A STACK OF CONTAINERS

    Three Procurement Technology Evolutions for 2023

    Sourcing/Procurement/SRM
  • DOCUMENTS BEARING THE INSIGNIA OF US CUSTOMS AND BORDER PROTECTION LIE ON A TABLE

    New CBP Regs Call for Greater Diligence by Brokers in Reporting Security Breaches

    Freight Forwarding/Customs Brokerage
  • The blank stare of a child's eye who is standing behind what appears to be a wooden frame

    The Alarming Continued Rise of Modern Slavery in Supply Chains: How Procurement Can Help Reverse the Trend

    Sourcing/Procurement/SRM
  • A GROUP OF WORKERS RANGED IN AN OFFICE, OF DIVERSE RACE, GENDER, AGE AND PHYSICAL ABILITY

    Podcast | The Supply Chain Workforce of the Future Is Already Here

    HR & Labor Management
  • A WORKER IN A WAREHOUSE, SUPERIMPOSED WITH GRAPHICS SHOWING SUPPLY NETWORK

    Enabling Intelligent Visibility With Supply Chain Analytics

    Data Management (Big Data/IoT/Blockchain)

Digital Edition

Scb nov 2022 sm

2022 Supply Chain Innovator of the Year

VIEW THE LATEST ISSUE

Case Studies

  • New Revenue for Cloud-Based TMS that Embeds Orderful’s Modern EDI Platform

  • Convenience Store Client Maximizes Profit and Improves Customer Service

  • A Digitally Native Footwear Brand Finds Rapid Fulfillment

  • Expanding Apparel Brand Scales Seamlessly with E-Commerce Technology

  • How a Global LSP Scaled its Security Program and Won More Business

Visit Our Sponsors

Orderful Yang Ming Alithya
Barcoding Blue Yonder BNSF Logistics
CoEnterprise Data Capture Deposco
E2open GAINSystems Generix
Geodis GEP GreyOrange
Here Honeywell Intelligrated IFM
Infor Inmar Keelvar
Kinaxis Korber Lean Solutions Group 2H
Liberty SBF Locus Robotics Logility
LogistiVIEW Lucas Systems MCA Connect
MPO Nvidia Old Dominion
OpenText ORTEC Overhaul
Parsyl PMMI QIMA
Redwood Logistics Ryder E-commerce by Whiplash Saddle Creek Logistics
Schneider Dedicated Setlog Holding AG Ship4WD
Shipwell Tecsys TGW Systems
Thomson Reuters Tive Trailer Bridge
Vecna Robotics Verity
Verusen
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • On-Demand Webinars
    • Upcoming Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright ©2023 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing