Competitiveness

To compete with China's Belt and Road, the U.S. should focus on R&D, immigration, technology, and trade.

The only way to take effective and far-reaching action to combat climate change while also preserving American competitive advantage is the imposition of a carbon tax with border adjustments.

Emily Kaine, MD, is the senior vice president for global health at the U.S. Pharmacopeia. Jude Nwokike is a vice president for global public health at the U.S. Pharmacopeia. The COVID-19 pandemic has caused massive disruptions to global supply chains. Africa is particularly vulnerable with respect to pharmaceuticals, both because between 70 and 90 percent are imported and because the continent generally lacks the political sway and bargaining power of other regions. In the short-term, the most acute issue is the need for huge quantities of quality-assured protective equipment, tests and medicines to treat the symptoms of COVID-19. Significant shortages of other essential medicines could materialize. With access to such essential medical products across the continent challenged, there has been a commensurate uptick in substandard and falsified products related to the testing or treatment of COVID-19.  But many countries in Africa have underutilized capacity to produce quality-assured, essential pharmaceutical products locally. In Nigeria, one of the countries with the greatest potential for rapidly scaling up production, pharmaceutical manufacturing production currently utilizes around 40 percent of actual installed capacity. Manufacturing output remains lower than its potential in part due to inconsistent demand, challenges in sourcing active and raw ingredients, unfavorable market conditions, and a lack of available investment to scale up operations, modernize equipment, and resolve local infrastructure limitations. Here are some ways to make use of this potential.  Insufficient knowledge about the real capacity of local manufacturing sectors, sources of component parts, and expected market demand is hindering efforts to make use of local excess capacity. Pharmaceutical manufacturing associations—along with market intelligence firms, multilateral agencies, and international donors—should lead a comprehensive mapping of the existing technical capacity, resources, and sources of raw materials available on the continent. Meanwhile, governments should work to forecast demand for locally produced products and create a favorable policy environment for local manufacturers to compete with producers from abroad, allowing them to better manage the risk associated with capital investments for scale up. Manufacturers and regulators must work to improve quality by applying international public quality standards to gain a competitive foothold, not only locally but in the broader global supply chain. The African Medicines Agency (AMA), a continental effort to harmonize medicines regulation, should be fully ratified and quickly scaled up to advance regulatory reliance, mutual recognition, and risk-based regulatory practices. The AMA will help support production of active ingredients in Africa, streamline market access, and reduce barriers to market entry for manufacturers. As of April 30, eleven countries had signed it and two had ratified it.    Progress can already be seen on multiple fronts. Ethiopia and South Africa have developed national strategies and manufacturing roadmaps that address common pitfalls such as sourcing active ingredients; addressing financial barriers; and improving quality in line with international standards. And these plans are starting to translate into specific gains. South Africa and Egypt are beginning to produce active ingredients locally—the first step in overcoming a major hurdle that makes it difficult for African manufacturers to compete with imported products from Asia. Ethiopia, meanwhile, is developing a pharmaceutical manufacturing industrial park to spur national and regional manufacturing activities.  National central banks, such as the Central Bank of Nigeria, are working to stimulate the sector by extending lines of credit to local manufacturers. In addition, Afrexim Bank, the UN Economic Commission for Africa (UNECA), and the African Center for Disease Control recently announced emergency interventions to rapidly respond to supply and policy gaps, including for medical products. Afrexim Bank further announced a $3 billion funding facility that includes funding to support local production of COVID-19 related health products. As part of this effort, UNECA and Afrexim Bank have compiled a list of fifty local pharmaceutical companies which have the capacity or have shown interest in supplying priority products.   COVID-19 is expected to drive countries to enact procurement incentives such as prioritizing and incentivizing the procurement of locally produced products, providing advanced market commitments, and establishing pooled procurement mechanisms such as those being developed by UNECA, the Federation of African Pharmaceutical Manufacturers Associations (FAPMA), and the WHO. Countries should also push global procurement agencies to consider similar incentives to further support the continent’s nascent pharmaceutical industry. Scaling up African pharmaceutical capacity will help provide sustainable access to quality medical products and increase health security during the COVID-19 pandemic and beyond. 

As fears of the growing coronavirus pandemic are leading to something close to a temporary shutdown of the U.S. economy, the moment has come to listen to the most important young political voice in the country: Andrew Yang. Yang’s dark horse run for the Democratic presidential nomination was based on the simplest of ideas: if Americans are poor and struggling, give them money. He took the idea of “universal basic income” (UBI) from the stuff of think tank analyses and policy books to the front pages of newspapers. Its moment has come more quickly than he could have imagined. Mitt Romney, the Utah Republican senator, has joined a growing chorus of Democrats in calling for direct cash grants of $1,000 to all American adults to help them weather the economic hit from the virus. As Congress is considering additional measures to help an economy that is careening into recession, getting money quickly into the hands of struggling individuals and families must be a top priority. To be clear, I have not always been a fan of UBI. In our 2018 CFR Independent Task Force on the Future of Work, we called for more targeted measures of the sort that are also under consideration now—extending sick leave to all working Americans, wage subsidies, increasing tax credits for lower-income workers, and strengthening unemployment insurance. In ordinary economic circumstances, such targeted measures may offer more bang for the buck. But the overwhelming virtue of UBI is its simplicity. It gets money to individuals in need, and out into the wider economy, more quickly than any other alternative. Unemployment insurance only kicks in after people lose their jobs, and does not fully cover many part-time and gig economy workers, or others who may see a temporary sharp reduction of their income during the crisis. Aid to small businesses will be critical, but the loans are complicated and often take months to disburse. A cash transfer has immediate impact that these other measures cannot match. That money is going to be needed quickly. In just the past several days, governors in major states from New York to Washington have ordered the closure of bars, restaurants, gyms and other recreational facilities. All concerts, conventions, sporting events and other mass gatherings have been canceled. Most Americans have appropriately stopped travelling, which is pummeling the airlines and hotels. Many retail establishments from Apple to Starbucks are shutting down or reducing hours. In an economy where consumer spending drives 70 percent of economic growth, millions of American workers are going to feel the impact immediately. It is heartening to see shows of personal generosity, such as NBA rookie phenomenon Zion Williamson, who has pledged to cover the salaries of New Orleans’s arena workers for one month. But the reality is that most Americans will have little or nothing to fall back on. Even with the solid economic growth of the past decade, some 40 percent of Americans still say they do not have the resources to cover a $400 emergency. The cost of UBI, of course, looks daunting. There are roughly 210 million Americans aged 18 or older, so the first $1,000 check would cost the government about $210 billion. And there is no reason to think one month will be sufficient. The current closures are likely to last at least two months, and possibly much longer. Despite the $1 trillion budget deficit currently being run by Washington—much of it brought about by the irresponsible 2017 tax cuts for companies and wealthier Americans—there is no question that such quick relief is affordable. The Fed has now cut overnight interest rates to near zero, and in the current market chaos, investors will still want to hold even very low interest-bearing Treasury debt. The money is there if Congress asks for it. Beyond that, who knows? Americans may find that the stability provided by a steady monthly check is exactly what they need in the current era, where the economic uncertainties of daily life are multiplying. It could mark the beginning of a long-overdue rethinking of how to help more Americans flourish in the economy of the twenty-first century. The 2008 financial crisis and the Great Recession left a poisonous political legacy in part because Americans believed that we were not all in it together. Big banks and others were bailed out, while many Americans suffered through grinding months and years of unemployment or part-time work or unmanageable mortgage payments.  This crisis is a chance at a do-over. All Americans must have the means to take time from work to protect their health, or the income to stay home and support their families as needed. If they don’t, the virus will likely spread more quickly and the economic pain will linger far longer. Andrew Yang is right. Give money to people. Do it now.

U.S. competition with China continues to intensify, but rather than adopting a strategy of containment, the United States should respond by reinforcing its relationships with allies and leveraging China's desire for stability to discourage disruptive behavior.

According to the New York Times, the White House wants to further limit China's access to U.S. technologies by barring their citizens in U.S. universities from performing sensitive research. That might do more harm than good. 

President Michel Temer’s decision to send troops into Rio de Janeiro officially killed not only Brazil’s pension reform, but also remaining hopes that he might tackle the litany of structural changes to the tax, labor, education and regulatory systems that economists and investors see as the country’s economic salvation. Yet these now-defunct reforms aren’t the only way to bolster growth. Trade matters as much or more for juicing gross domestic product, as the influx of goods, services and competition can help attain the economic holy grail of rising productivity. And given the U.S. protectionist pullback, opening to the world could, for once in Brazil, be politically popular in this election year. Brazil has always been a reluctant trader. Despite its natural resource bounty, it remains one of the world’s most closed economies. Its handful of formal trade agreements give it preferred access to just 10 percent of global markets and contain hundreds of exceptions, diminishing their reach and heft. These self-created handicaps keep Brazil out of the more profitable parts of global supply chains, instead largely stuck supplying raw materials to other nations’ factories. And the relatively heavy taxes on imports drive up costs for local companies and consumers alike. Yet Brazil’s lofty barriers also mean that reform could bring much more bang for the buck. A 2014 McKinsey study estimated that by opening its economy, Brazil could add 1.25 percent to annual GDP growth, more than labor or regulatory reforms would bring, and similar in scope to a total tax overhaul. These economic benefits from trade matter even more as Brazil’s population ages. From 1990 to 2012, new workers drove more than half of all GDP gains, some 1.8 percent a year. Yet this demographic bonus is ending -- in less than a decade, Brazil’s children and elderly will outnumber its breadwinners -- and that will cause a once-reliable engine of growth to sputter. Brazilian politicians understand the costs of protection. They give national aerospace champion Embraer the freedom to import equipment and components free of the tariffs other industries face. Their jets are now globally competitive. This stands in sharp contrast to Brazil’s automakers, which enjoy no such privileges. Brazilian cars as a result take twice as long to make and are 40 percent more expensive than those in Mexico. Their paltry exports go largely to captive Mercosur trading partner Argentina. The political timing for opening up may finally be right. Trump’s penchant for threatening -- if not breaking -- so many extant trade deals could spark reconsideration of an issue that used to be all but taboo in Brazil’s politics. In a country where fewer than two in 10 people like the U.S. president, anti-Trump issues can be in vogue. And by pulling back, the U.S. has given Brazil space to shape new accords more to its liking. The power struggle that sunk the Free Trade Agreement of the Americas in the mid-2000s has faded with America’s absence. EU-Mercosur talks are the place to start. After nearly two decades of on-again, off-again talks, the participants are trying to break through standoffs on agriculture and rules of origin. Trump’s recent tariff hikes on steel and aluminum tariffs, hitting industry on both sides of the Atlantic, could foster the camaraderie needed to overcome the last sticking points. Also ripe for a Brazilian rethink is the Pacific Alliance. Founded by Mexico, Colombia, Peru and Chile, the ambitious agreement goes after not just tariffs but also barriers to investment, services and the movement of people. Brazil’s participation would jump-start aspirations for Latin American economic integration. Most ambitious would be joining the revised Trans-Pacific Partnership, opening nearly a third of the world’s markets to Brazil’s companies, and changing the way government procurement, intellectual property protection, and public and private credit work in the Southern Cone nation. Dropping barriers would bring turmoil to some sectors, no doubt. In the 1990s Brazil unilaterally reduced tariffs on many goods -- leading imports to double as a percentage of the economy even as exports stagnated. Many unproductive companies faltered and failed, and some of their former employees have yet to recover. Brazil’s clothing and shoe factories and gas production are similarly vulnerable to more opening, even as car makers and other advanced manufacturers stand to gain. Yet for Brazil to grow faster for longer, it has to become more globally competitive. The now-stymied internal structural reforms are one path; economic opening is the other. And as Embraer and the many agro-businesses show, when given a bigger and more level playing field, Brazil’s companies can thrive. But they need the preferred access to markets that trade agreements would bring. Law and order and anti-corruption promises dominate the early presidential campaign slogans. Yet polls show Brazilians care most about their pocketbooks. Trade’s promise of cheaper and better goods could appeal to middle- and upper-class Miami-bound shoppers and poorer Bolsa Familia recipients alike. And for the broader economy, it would bring a much-needed win. View article originally published on Bloomberg View.

President Donald Trump's decision to impose tariffs on steel and aluminum will destroy an already weakened World Trade Organization.

Donald Trump's decision to impose tariffs on steel and aluminum is the most significant set of U.S. import restrictions in nearly half a century. It will have huge consequences for the global trading order.