Is It Time to Panic Yet?

March 16, 2020

This week’s column is about the coronavirus. After all, what else could it possibly be about? Every think tank in town is producing commentaries on what is going on, what to do about it, and what it all means, and I defer to everybody else’s expertise. The best I can do is offer a few random impressions.

First, this is a good lesson in humility. Just when the economy is humming along, and our president is telling us everything is great, a black swan arrives to remind us that life is not that simple. This is not the first pandemic, and it won’t be the last—we’ve had them for at least 650 years—and each time we rediscover that we are not adequately prepared. September 11 attacks prompted a massive government-wide effort to reform our security procedures that was expensive, time-consuming, and annoying, but we have not yet had another 9/11. Perhaps our current experience will teach us not to shift resources away from disease prevention and remediation once the crisis has passed and instead put more money and people into getting ready for the inevitable next one.

Second, one lesson that people in Washington, particularly lobbyists, clearly learned is Rahm Emmanuel’s well-known advice to never waste a good crisis. Everybody with an unfulfilled agenda is out there arguing that the virus now justifies Congress or the president doing what they had been unwilling to do in the past. So, in my little corner of the world, we see the people who have opposed the president’s tariffs from the beginning—steel, aluminum, or China—now demanding they be removed in order to facilitate economic recovery from the pandemic. Likewise, the tax lobbyists are dusting off all their favorite ideas in the hope that if there is a tax bill train leaving the station, they can throw their baggage on board. The fact that most of these things have very little to do with the coronavirus or economic recovery doesn’t matter. The former has provided an excuse to argue that their pet project will accomplish the latter.

Third, the crisis provides another opportunity to remind government officials that the economy does not operate like a light switch, particularly when you are talking about supply chains. Advocates of “decoupling” with China, for example, seem to have the idea that if the U.S. government tells you to, you can simply close your plant in Wuhan today and open a new one in another country next week. Or, as the White House trade adviser Peter Navarro suggested the other day, now is the time to stop buying Chinese pharmaceuticals and go back to making them here. That may or may not be a good idea, but it is clearly an impractical one in the short term. Once the capability is gone, it cannot be restored overnight, particularly in a highly regulated sector like pharmaceuticals, where extensive testing is required before medicines are released to the public. The same is true of industrial supply chains. Manufacturers need to be sure their parts are reliable. That requires testing and certification, which can take years in some cases. So, there is no light switch, and it is dangerous to pretend there is.

The erosion of domestic manufacturing capabilities is an inevitable consequence of global supply chains. Supply chain managers look for sources that can provide the best quality at the lowest prices with the most convenient delivery schedule. The benefit is more economic efficiency and, hopefully, lower prices for consumers. One cost is lost jobs at U.S. companies that did not get chosen in the supply chain sweepstakes. The other cost is the loss of capability. We stop making something, and over time the people who know how to make it move on to other things, the plant and equipment are sold, repurposed, or destroyed, and we find ourselves dependent on foreign production.

On the defense/security side, this problem was anticipated, and there are laws in place like the Defense Production Act that give the president authority to deal with it. Those authorities, however, deal primarily with items essential to our armed forces. Once you get beyond that, it gets complicated. Some people seem to believe in autarky—we should make everything for ourselves and rely on nobody. However, that's a ticket to a no-growth, non-competitive economy. Instead, we rely on comparative advantage to maintain our economic leadership. With 95 percent of the world's consumers outside the United States, we really have no choice if we want to continue growing. However, that inevitably means we will be dependent on others for some items, which opens the door to the Peter Navarros of the world arguing for protection.

Their arguments deserve debate, but that should be on a case-by-case basis and not under the threat of panic. Not wasting a crisis should mean taking the opportunity to plan wisely, not to make rash, ill-considered moves we will come to regret.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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