New CPA Economics Report Warns of Foreign Control Over U.S. Antibiotic Supply

This week’s episode of The Big 3 focused on CPA’s new report on the foreign control of America’s antibiotic supply chain and the collapse of the domestic production base that once supported it. CPA economists Mihir Torsekar and Andrew Rechenberg traced the story back to an East Syracuse, New York facility that once produced 70% of America’s penicillin supply, but now produces nothing, symbolizing how the U.S. lost control of a critical industry.

The discussion highlighted how China now supplies roughly 87% of the antibiotic active pharmaceutical ingredients imported by the United States, while India formulates much of those ingredients into the finished drugs Americans consume. The hosts stressed that this is not just a country-level dependence, but a highly concentrated firm-level chokepoint, with a handful of companies controlling much of the trade.

They also underscored that foreign producers are not merely cheaper — in some cases, they are cutting corners on safety, falsifying data, and exposing American patients to greater risk. Finally, the episode explored how policymakers can begin rebuilding antibiotic sovereignty through a mix of tariff-rate quotas, procurement reform, allied sourcing, and support for the remaining Western footholds in production, especially the Sandoz Kundl facility in Austria and the limited final-dose capacity still operating in the United States.

Transcript

SPEAKER_01 0:00

We are extremely reliant on countries like China at this point. If any event comes across like COVID or any supply chain disruptions, even to a single plant, our system is immediately vulnerable. 80 to 90% of the world's key antibiotic ingredients come from China.

SPEAKER_00 0:15

Welcome to the big three for from the Coalition for a Prosperous America, where each week we break down the three biggest stories shaping U.S. trade, industrial policy, and the American economy. I'm Mihir Torsicar and I'm joined as always by fellow senior economist Andrew Reschenberg. So let's get to it. Alright, well thanks, Andrew. So this week uh we're going to be talking about your report that you just published on the foreign control of America's antibiotic supply and what's left of the industrial base we used to have. Uh the headline finding, it looks like it says China's uh China supplies about 87% of every antibiotic active ingredient in the uh that the United States imports. And the next biggest source, Bulgaria, supplies less than 5%. India formulates the bulk of those Chinese ingredients into the pills and vials that we import, and the supply chain tends to run in one direction. China makes the molecule, India turns into a medicine, and we buy it. Uh and it seems to get worse the deeper we look. So roughly 90% of the world's capacity uh for uh every penicillin antibiotics sits in China, and there's only seven facilities that make it on the planet, and five of them are our Chinese. So um I thought, you know, for today's big three, we'll uh I'll I'll be doing the questioning for you because it's your report and you've got all the details. So let's get right into the the nitty-gritty here. So let's start off with the first question here, or the first segment I should say, which is how America lost its antibiotic industrial base. So, Andrew, I want you to set the scene for us. Talk about East Syracuse, what actually happened there, and why is that the right place to start this story?

SPEAKER_01 1:54

Yeah, so the clearest example of America's lost antibiotic production base is the East Syracuse Production Facility, which was owned by Bristol Myers Squid. And this facility was established in 1943 during World War II, and it became a massive historic antibiotics facility, supplying U.S. armed troops, supplying nearly every hospital in the U.S. And at its peak, it produced 70% of the United States penicillin supply. So this was a massive facility that could supply the entire country. But now it doesn't even produce anything at all. In around 2004-2005, they winded down production and closed their penicillin production altogether. This once, this once massive facility that produced 70% of the supply now is producing nothing. And we're now completely reliant on foreign facilities, especially for the upstream antibiotic API supply. And it's also important, just to put things in perspective, that antibiotics are essential ingredients. This is essential infrastructure for the United States. It's essential for surgeries, for making surgery safe, for protecting cancer patients, for treating infections, keeping hospitals functioning. This is basic medical infrastructure that is used all the time, but now we can't produce the core ingredients. And the main reason for this is the price pressure that we're seeing from imports. We're seeing huge import volume coming in from China and India. China has been a primary link for the APIs, and India has been a primary link for the final drug formations. And since 1992, import prices have fallen by 90% for antibiotics. And so this is just a snapshot of how much this price pressure is coming into the U.S. and undermining and forcing facilities like the Eastyracus New York facility to close altogether. And that leaves us at a state in the United States where we really only have some limited producers left. Our main producer here in the U.S. is U.S. antibiotics in Bristol, Tennessee. And they do produce a good amount of the final drug formate form antibiotics. So this is the final form you're going to see when you use it in a hospital or you get it from a pharmacy or anything like that. But this is just the final drug formation. We actually don't control any major facility that can actually produce the antibiotic API. This is the core pharmaceutical chemical ingredients that you're need that you need to actually make the pill in the first place. So these upstream ingredients for this US facility, even, they still have to import that from overseas. And so even for our facilities that are doing the best, that we still should be supporting, we still have this layer of dependence. And you mentioned in the in the intro that we only have seven facilities worldwide that can produce this API, this base pharmaceutical ingredient that you need to form these drugs. And there's only seven in the whole world, and five of them are in China. And so this is a such a concentrated problem in our supply chain that, and we really need to find a solution because we have very limited options here in the U.S. We need to protect what we have and we need to find a foothold for next steps.

SPEAKER_00 5:10

Yeah. And how much of that uh cost differential is because just simply like standards are just not maintained? Like if how much of that is accounted for by like the standards disparity? Aaron Powell Yeah.

SPEAKER_01 5:21

So this is actually a a primary problem that we're seeing that a lot of these foreign facilities, they're not only subsidized by their governance, whether it's China or India, and they're not only using this as an industrial policy tool, but they're also cutting corners. They're cutting corners on safety, they're cutting corners on the drug quality, and so you're not really getting the same drug for less money. You're getting a worse drug for less money. And I think a primary example of this is the 2013 case in India. So Ranbaxi, which was a major Indian company producing antibiotics and selling them to the US, actually pled guilty to felony charges in the U.S. after they admitted that they had manufactured adulterated tests, they had falsified data to and presented that to the FDA, and they've sold drugs in the U.S. market, including essential antibiotics, based on these fabricated test results and false statements made to the FDA. And so this is the level that we're dealing with. This is there, it's felony charge level that these companies are having to admit to. That's how much quarters they're cutting, and that's how much safety risk American patients are because of it.

SPEAKER_00 6:32

Yeah, the things that come to mind here is that, you know, I'm just speaking broadly about how this whole quote unquote free trade apparatus worked. It was supposed to deliver cheap, you know, cheap imports. That was supposed to be the real the gain from this new, you know, this art trade architecture. And we're actually seeing when it comes to this the industry, the pharmaceuticals space specifically, that cheap imports are actually quite expensive because you're paying for it with your health. Um and and I guess the other thing that just regarding costs here, I'm I'm curious because we always hear um, you know, consumer welfare above all else, cheap, cheaper is always better. Um but in this case, you know, I obviously you talked about the cost differential. How big of a cost differential are we talking about here? I mean, is it substantially more expensive for you know for US consumer or excuse me, US producers to try to compete against uh the Chinese imports? I mean, because I'm just wondering if it's the cost differential is narrow enough that like it it really isn't that it isn't insurmountable, but just that it's been framed so long that anything that's you know costs a little bit more is just a non-starter.

SPEAKER_01 7:36

Yeah, so it's uh it's a complicated picture for what this price differential looks like. And basically what we're looking at is that in percentage terms, it's a big cost differential. And so but when you look at absolute terms for how much this would cost to have a more safe supply chain, it's very, very small. And so just to put things in perspective, that is like there might be a one to 200% price difference between what we're importing from India and what we could make here in the US. And on the surface, that sounds like that's quite a big difference. It would be way more expensive to manufacture here in the US. But when you look at that in absolute terms, especially for these generic pharmaceuticals, that it's really only a few cents per dose that you're paying different. And so while in percentage terms, it seems like a lot, you might need a very high level of tariff protection on paper to get some of the results that we want. Really, it's not going to impact prices that much at all. It's with no hospital is going to go bankrupt for half and to pay a few cents extra per dose for antibiotics. And also what we're seeing a lot of times for whenever we have these instances, like the Ranbaxi incident that I just mentioned, where they have to plead guilty to felony charges or the FDA shuts down their facility because they find these safety failures. That's actually where we're seeing the highest price hikes, is whenever we're so reliant on these foreign facilities and their safety measures cause the supply to be shut down. That's when we're seeing even higher, 300 to 500% price increases, as was found by a survey of American hospital pharmacists. That that's what we're seeing when we have some of these crises. So really the cost is the cost difference that we need to correct for is substantial because a lot of American producers are being some severely undermined, but that's not actually going to cost that much in practice. It's not going to cost that much more to have a safe supply chain.

SPEAKER_00 9:25

Yeah, that that that's such a critical distinction, right? Because when you actually can frame, frame the actual numbers and you can actually look at you know what you get for the slightly higher cost, it's it's you know invaluable if you think about the supply supply chain security, but also the the safety of the drugs that we're consuming. Um and it it just kind of I was also thinking about like you know the next segment here with the the foreign controlled um supply choke points and how it's it's so concentrated with just so few players. Maybe you could walk us through the architecture. So, you know, looks looks like China makes the active ingredient, India formulates the drugs, and then we import it. But the report goes a little bit deeper than that, like then just the country level. So if you could talk a little bit about where the choke points sit at the firm level and the facility level, um, because I think that was a real incisive um, you know, value add of this report.

SPEAKER_01 10:15

Yeah, absolutely. And so, yeah, as as you said, that China makes the base API chemical ingredients, and that's formulated in India. And so you can see in a lot of the import data that for this API imports, we are heavily importing it from China for the drugs that we are still able to make here in the US for that final drug form. But also, India itself is also reliant on China for this. And so it's really seen as this China makes the global supply. They have about 90%, 80 to 90 percent of the global antibiotic API production concentrated solely in China. And then India has a huge portion of the actual drug formation, and then the US and also the European Union also import a lot of this volume, and they're becoming increasingly reliant on this really fragile and concentrated supply chain. And when you look at the import data, for example, 87% of U.S. antibiotic imports, API imports are from China. And same thing with the EU and European Free Trade Association, that that's at 67% that they are importing their APIs from China. And India is no exception. India is also very much involved in the supply chain. They're the major downstream formulator. Europe, for example, relies on India and China for 77% of their antibiotic imports. And so we're not alone. The United States is not alone in this fight. Europe is seeing a lot of the same problems, but India itself is reliant on China as well. They is China supplies an even higher percentage of the API going to India at about 91% of all the API imports from it to India coming from China. And then, as you also touched on, this is also very concentrated at the firm level. So taking India, for example, the top four API suppliers in China supply about 50% of the API imports into India. 54% to be exact. And so this is a hugely concentrated, not only that they're getting 91% from China, but four companies control most of that supply. And so this is very concentrated at the company level as well. And we see this also in the US. For example, for the drug flows coming from India to the US, Aurobindo is the largest supplier. And Ourobindo alone supplies 32% of US antibiotic imports from India. And if you add in the second largest Indian supplier on top of that, Lupin, you reach about 40% just from two companies. And so that's one of the things, the big highlights of this report is that we're highlighting that this ex this concentration exists not only at the country level with India and China, but it's very concentrated in these very sole firms, these very small choke points in the supply chain, that if anything goes wrong with one of these, you're going to see basically COVID-level supply chocks for these specific industries.

SPEAKER_00 13:07

That and that's such an interesting uh nuance to this argument or to this art uh report that you put together, because you know, again, we usually think about this in in country-specific terms, and you look at the trade data and you look at the volume, but when you can drill down deeper and you can say it's not just concentrated in one country, it's concentrated in just a handful of firms, that really like throws into fresh relief, I think, the urgency of this uh of this single point really of failure that exists. And and, you know, you mentioned the COVID supply chain uh, which, you know, honestly, it should be more uh, I think, in the forefront of all of our minds about how, you know, our entire global supply chains could just be arrested because we didn't have access to like cheap cloth masks. But it's one thing when we've got cloth masks that we don't have access to, but you know, it's another thing when we're talking about pharmaceutical ingredients that are these are just like this is a non-negotiable thing. We absolutely rely on it for so many reasons. And so this is just that's an incredible value add that you were able to put put together. Um, and so I guess, okay, so we we know that that this is a problem. Um, and policymakers need to know you know, how do we then begin the process of rebuilding antibiotic sovereignty, which brings us to the third part of this discussion. So, Andrew, you your paper kind of announces uh a stack of tools that that policymakers have, right? There's tariff rate quotas, procurement reform, foreign oversight, uh, joint work with the EU, NATO readiness. Where do you actually start and what do you think carries the most weight?

SPEAKER_01 14:35

Yeah, I think the the key area to start here is to build on and protect our the capacity that we currently have. So I mentioned briefly the U.S. antibiotic company in Tennessee, and they are an important player in this debate because they are one of the major U.S. producers for this uh final drug form antibiotic production. But the key area here is that they don't themselves make API. They actually import their API from Europe. And increasingly, one of the big takeaways from this report is that we need to be working with our European allies in this space and building on the key manufacturing facilities we have not only here in the US, but in Europe as well, in order to get out of this reliance on China. And the key exception for all of this reliance that we're seeing in the United States and Europe for both the antibiotic production and the API supply is the Sandoz Kundel facility in Austria. This is more than just a legacy plant. This is the last major large-scale vertically integrated penicillin production system in the entire Western world. And what that means is that they still perform the full supply chain. They do the penicillin G fermentation, they convert that to the API, they synthesize the API and they formulate that into final dose antibiotics. They do the entire supply chain in Austria and are disconnected from the Chinese supply chain altogether. We need to really seize upon key strategic footholds like this. This is a key manufacturing facility, one of the only exceptions that we have to this Chinese-dominated supply. And we need to be reliant on our European allies a lot more than we are reliant on a potential strategic adversary like China. And we need to build on these footholds. And also, we it's important to recognize that this facility in Kundal is really proof that we can sustain large-scale antibiotic production from full vertically integrated all the way from base ingredients to the final tabulation. We can do this in the West. We can do this in the United States. This is proof that we can do it and that it can be sustainable and well-priced. And we need to seize on these opportunities. And the main ways that we can do this are a number of different things. We can have a tariff-free quota system where we allow in imports from allied countries that have similar safety regulations, like Europe or like the United Kingdom. And these kind of countries we can work with because we already have FDA mutual recognition agreements with them. We know their safety standards are high quality, and we won't be seeing the same sort of issues like we're seeing with India, with the Ranbaxi case. And it's also necessary in the short term, at least, to work with these countries in order to get off the Chinese supply. We don't have API production we can do here in the U.S. And so we need to be working with our European allies to be able to work on what they do best. And there might be other drugs besides antibiotics that the United States formulates better. And so we need to kind of have this joint approach and this joint basically a joint procurement reform where we're prioritizing not only just safer quality medicine, but also prioritizing not only procuring domestically, but from allies as well, so that we can ally shore our supply chain and bringing that back to the United States, Europe, Great Britain, our allies in East Asia, and being able to kind of just get off of this Chinese dependence. We can do that through tariff rate quotas. We can do that through procurement reform with starting with the Department of Defense or the VA. These are very easy steps to make, especially on national security grounds. These are these are the antibiotics our troops depend on. And so it's very easy to justify a secure and safe supply chain that's not controlled by a geopolitical adversary.

SPEAKER_00 18:23

You know, I'm wondering what is because we have heard, at least as I recall since COVID, the the importance of reshoring, you know, this critical supply chain. And it I just wonder, I mean, is it has it been the case that announcements have been made and then they fizzled, or is there is there has been there been a lack of like policy coherence? I mean, what is the general gist of of the challenges that have have kind of held things back, or are we on the right track? I mean, you tell me, you're the expert on this.

SPEAKER_01 18:49

Yeah, definitely I think there are some positive steps. So one of the the big things that happened recently is we had a positive 232 investigation announcement saying that it is declaring that pharmaceuticals are a national security industry. This is an essential industry we need to protect here in the U.S. We don't have any tariffs on uh generic pharmaceuticals yet, but we are moving in the right direction. And I think we're starting to see some major announcements of investing in the U.S. for general pharmaceutical production and being able to make more here more safely and more reliably. And I think that this is some of the early signals that we should be seeing. I think that we can do a lot more and we should be doing a lot more, especially with working with areas like Sandos and Kundal and being able to utilize their supply that they already have rather than continuing to import a lot of the Chinese API. And the more we can support this diversified production base, the safer the supply chain is going to be. But in general, I think the the next major step that needs to happen is that, especially in procurement, this is really the lowest hanging fruit, is that the government buyers, especially, should not just simply chase the lowest price. They need to start accounting for reliable production and reliable supply chains and high-quality medicines. I think we're we're seeing with a lot of these medicines coming in, there was a study done for Indian-made pharmaceuticals that it has a, they have a 54% higher rate for adverse events. And so these are things that should be considered in any procurement. That are the drugs going to have these adverse events? Are they going to be reliable? Not just simply going after price. And so I think we're starting to see those, that recognition that this is uh an industry we need to do more on, but we're still waiting for some of those most substantial policy moves.

SPEAKER_00 20:32

So I think um probably a good place to wrap up here, but I'm curious, you know, in in the work that you've done in this in this space, what do you think um is you know a big thing that that you want readers, or excuse me, readers, well, I guess readers of the report and listeners of the podcast to take away from from the report and from today's podcast?

SPEAKER_01 20:51

Yeah, I think the the main thing to take away is that basically just pay attention to what you're buying. That I think that a lot of people don't realize the a lot of the problems in this supply chain, that it's it's really a shame for how the current system is operating, that if you go to any pharmaceutical store or pharmacy, that if you look at the back of your medicine, you don't necessarily know where it was made or who it was made by without having to do a lot of research. And I think that even this sort of basic labeling and basic accountability for these companies, and that's one thing that we're going to definitely be working on more, but really just we need some awareness of where our pharmaceuticals are coming from, how secure these supply chains are. Because most Americans, when they go to the pharmacy, they just trust what their pharmacist gives them. But a lot of times that pharmacist themselves doesn't necessarily know even where they came from just because of how much obscurity has been baked into the system. And because a lot of these companies, these foreign manufacturers, are directly incentivized to hide where they make things. Because if you Google, you look up these stories of facilities being shut down or really bad FDA inspections or lying to lying on these safety tests. And so they don't want you to know who's making them or where they're coming from. And so I think that Americans just need to be aware and we they need to be able to make the right choices and support high-quality medicine made by US or European producers and just have a lot more confidence in their medicine supply.

SPEAKER_00 22:17

I think the the that opacity is really that you kind of allude to is that people, you know, people don't know the source of where they're getting things from. They just see the sticker price. And I think I feel like that's been so uh expected or so kind of built into the system right now that that it almost serves as a deliberate shield to only like you know to hide the true cost of what we're paying for. Um and it's you know allowed us to become importers of things like you know products made with forced labor, for example. I mean, the the implications are just so much deeper as soon as you start to like remove that shield and look at the human cost that is at the heart of you know that that low sticker price that you're paying. And of course, the drugs that we consume is is no different. Um, you know, I think that this is just another excellent um report that you've done. Obviously, I know I I got to see how much work you put into it uh, you know, in a lot of our meetings, and it's it's really great to see you able to wrap it up and and uh get such a favorable response and a lot of recognition for for the hard work that you put into it. So congrats on the report. Um, so I think that's probably a good place for us to wrap up for for today's uh show. You can learn more about our work at prosperousamerica.org and of course find Andrew's report there as well. But be sure to find us on YouTube and you can check us out, uh check out the big three on Apple, Spotify, Google, or wherever you get your podcast. That's it for now. We'll see you next week. Thank you.