Trade War: Drugs and Data, China's New Weapon in the Escalation against America?
- Gabriele Iuvinale
- 5 giu
- Tempo di lettura: 11 min
China, under Xi Jinping's leadership, could seriously consider using its dominant position in the production of Active Pharmaceutical Ingredients (APIs) and generic drugs as a powerful geopolitical weapon in the rekindled trade war with Donald Trump. This move, which would replicate the strategy already adopted with rare earths, would have devastating implications for US public health and its economy.
Global dependence, particularly that of the United States, runs deep: China supplies around 80-90% of APIs for generic drugs and a significant share of Key Starting Materials (KSMs), which are crucial even for producers like India. China's insurmountable cost advantage (40-50% lower than in the West) makes "reshoring" extremely difficult and costly for Western nations. Despite the US being the largest and most profitable global pharmaceutical market (around $600 billion in 2023), leading in innovation, it remains paradoxically vulnerable in the supply of essential raw materials.
The situation is further exacerbated by the complex and contentious relationship between Xi Jinping and Donald Trump. Trump has openly labeled Xi as a "formidable negotiator" with whom it's hard to strike a deal, amidst ongoing friction over trade tariffs and sensitive issues like Taiwan. In an escalating scenario, China could employ tactics such as:
Direct restrictions on API and KSM exports: causing immediate shortages of vital medicines and triggering a health crisis.
Strategic price increases: leading to inflationary pressure on the American healthcare system.
Exploitation of quality standards: creating obstacles and delays in the supply chain.
An additional concern, stemming from China's clear intention to dominate the global pharmaceutical market (as outlined in its 14th Five-Year Plan and Made in China 2025), involves the privacy and security of American citizens' data. Chinese biotech companies, like BGI (which faced US Department of Defense sanctions due to ties with the People's Liberation Army), have illegally collected sensitive clinical and genomic data from American citizens. This data, while valuable for research, can be used by China for surveillance purposes and to accelerate its own innovation, transforming information into a new and insidious geopolitical weapon.
In essence, China holds strategic control not only over the physical production of pharmaceuticals but also over the data driving future medicine. This provides it with a powerful and asymmetric leverage to use in a trade war with a Trump administration, compelling the US to urgently invest in diversification and "reshoring" to protect its health and national security.
Introduction
China, under Xi Jinping's leadership, has shown increasing assertiveness in its foreign and trade policies, frequently leveraging its global economic dependencies as geopolitical tools. A prime example was the de facto global export embargo on rare earths, whose long-term effects are now becoming apparent, as highlighted by difficulties in the automotive industry (for instance, Suzuki faced production interruptions in Japan due to magnet shortages). The growing concern is that Beijing might replicate this strategy in an even more sensitive and critical sector: pharmaceutical raw materials (APIs) and generic medicines. The profound asymmetry in the supply chain of these products grants China extraordinary influence, potentially exploitable as a "weapon" in a context of escalating global geopolitical tensions, further complicated by the complex and often controversial relationship between Chinese President Xi Jinping and President Donald Trump.
1. The Asymmetry of the API and Generic Drug Supply Chain
The global pharmaceutical supply chain presents an even more pronounced and risky asymmetry compared to that of rare earths, particularly concerning APIs and generic medicines.
1.1. Stratified and Deep Dependence, and Chinese Ambitions
China is not just a major player, but often the sole supplier for a wide range of essential APIs used in generic drug manufacturing. This dependence is multi-layered:
Direct API Supplier: China produces a significant percentage of the APIs used globally. It's estimated that approximately 80-90% of APIs for generic and high-volume drugs come from China. This includes ingredients for fundamental antibiotics (e.g., Penicillin, Amoxicillin), painkillers (Paracetamol, Ibuprofen), cardiovascular drugs, steroids, vitamins, and heparin.
Supplier of Chemical Intermediates (KSMs): Even countries that produce APIs independently (like India, the "pharmacy of the world") often rely on China for Key Starting Materials (KSMs) or the chemical intermediates needed to synthesize APIs. India, for example, imports about 70% of its pharmaceutical intermediates from China. This means that even a seemingly self-sufficient nation in finished drug production is vulnerable to a Chinese move on KSMs.
Insurmountable Cost Advantage: API production costs in China are often 40-50% lower than in Western countries, due to lower labor costs, economies of scale, dedicated infrastructure, and, historically, less stringent environmental regulations (though these are evolving). This has made it uncompetitive to maintain or reactivate significant production capacities in the West.
Global Dominance Ambitions: The Chinese government has launched a concerted effort to establish itself as the world's leading developer, manufacturer, and distributor of pharmaceuticals. This goal is explicitly codified in President Xi Jinping's 14th Five-Year Plan and operationalized by his Made in China 2025 initiative. The plan seems to be working: while the United States imported $2.1 billion in Chinese-origin pharmaceutical products in 2020, drug imports from China surged to $10.3 billion just two years later. API production in China is projected to continue growing, with the market reaching $347.9 billion by 2029. This demonstrates China's clear intention to exert absolute control over global drug availability.
1.2. Technical Characteristics of Dependence
From a technical perspective, dependence manifests in several ways:
Complex Chemical Processes and Specific Expertise: API production isn't simple ingredient mixing; it demands advanced chemical expertise, multi-step synthesis processes, rigorous purification, and specific know-how for each API. China has developed a vast base of chemical engineers and deep experience in these processes. Concentrated Chinese drug production threatens not only our access to vital healthcare but also the US supply chain. Drugs are often the final product of a complex manufacturing chain. For small-molecule drugs, raw materials are transformed into a series of intermediates, which are finally refined into active pharmaceutical ingredients. China has sought to control the supply of critical APIs and precursors in the production process. Our reliance on Chinese drug manufacturers is particularly concentrated in the generic drug market, which accounts for 90% of all prescriptions in the United States. Many other commonly used drugs in America, such as 97% of all antibiotics, 95% of ibuprofen, and 70% of acetaminophen, come directly or indirectly from Chinese suppliers.
Quality Standards and Regulatory Compliance: The Chinese pharmaceutical industry is increasingly focusing on strengthening drug safety oversight and improving production processes to ensure the quality and efficacy of API products. However, in February 2024, Food and Drug Administration inspectors issued a scathing indictment against the main production facility of the Chinese company Sichuan Deebio, which not only lacked basic quality control measures but also had a management team that systematically misled investigators during their inspections.
Unique Industrial Scales: The sheer size and complexity of Chinese facilities are often unmatched in the West, enabling production volumes that would be unrealistic or prohibitively expensive to replicate elsewhere at competitive costs.
2. Geopolitical Context: The Volatile Trump-Xi Jinping Relationship
The possibility of China using its pharmaceutical leverage is amplified by the particular relationship between the two leaders, Xi Jinping and Donald Trump.
2.1. A "Formidable Negotiator"
Donald Trump has often expressed his difficulty in "connecting" and reaching agreements with President Xi Jinping, labeling him a "formidable negotiator." This statement, in contrast to his claims about other world leaders with whom he felt he had an easier time, reflects his perception of Xi's firmness and shrewdness during their trade talks and other diplomatic engagements. Despite occasional mutual admiration, the difficulty in finding a permanent understanding on the ongoing trade war and other fundamental issues has been a constant.
2.2. Persistent Points of Friction
The relationship is characterized by persistent frictions that "add fuel to the fire":
Trade Tariffs: For months, China and the United States have engaged in a tit-for-tat imposition of trade tariffs, seeking to gain economic and structural advantages. This conflict has already highlighted both countries' willingness to use economic tools for political ends.
Taiwan: Recent issues concerning Taiwan represent a particularly sensitive flashpoint. China views Taiwan as a breakaway province, while the United States has historically maintained a stance of "strategic ambiguity" while strengthening support for Taiwanese democracy. Any move on this front could trigger extreme responses from both sides.
Technology and National Security: Other areas of contention include technological control (e.g., semiconductors, artificial intelligence) and perceptions of mutual national security threats.
In a context of such instability and mutual distrust, the likelihood of China resorting to unconventional means to assert its position or respond to US pressure increases exponentially.
3. The United States' Position in the Global Pharmaceutical Industry: A Critical Context
The United States holds a prominent position in the global pharmaceutical industry, a fact that makes its dependence on Chinese APIs an even more strategic and paradoxical vulnerability.
Dominant Market: In 2023, the US pharmaceutical market was valued at approximately $602.19 billion, representing roughly 30-40% of the global market and 45% of total global pharmaceutical sales. This makes it the largest and most profitable pharmaceutical market worldwide.
Innovation and Research: The United States is a leader in innovation and research and development (R&D) of new drugs, especially in high-value sectors such as biotechnology, advanced therapies, and oncology drugs. US pharmaceutical and biotech companies are among the most capitalized and cutting-edge globally.
The Paradox of Dependence: Despite this leadership in terms of market value, innovation, and finished product sales, the US industry remains profoundly dependent on China for the foundations of production: APIs and KSMs. This creates a critical paradox: a nation leading in innovation and the final market is vulnerable to disruptions in the supply of basic components, which are often low-cost per unit but essential for producing high-value drugs. This asymmetry makes China's position particularly powerful.
4. US Data Privacy as a New Chinese Geopolitical Weapon
Beyond dependence on pharmaceutical raw materials, China appears to be seeking absolute control over drug availability while engaging in trade practices that compromise the privacy, security, and safety of American citizens.
Privacy Violations and Data Security: Chinese biotech companies have been responsible for the theft of a large amount of personal data from American citizens. This includes sensitive clinical histories and complex genomic data, currently used by American research institutions.
Exploitation of Sensitive Data: While American researchers and drug developers obtain patient consent for the use of this sensitive data, Chinese companies circumvent fundamental privacy protections. This information drives drug discovery, enables innovations in precision medicine, and trains artificial intelligence algorithms. But in Chinese hands, this data facilitates Chinese government surveillance operations at home and abroad. American population data is considered particularly valuable given its broad diversity and sophisticated laboratory testing, representing a veritable goldmine for Chinese actors seeking to surpass American innovation.
Involvement of Strategic Chinese Companies: Chinese companies collect personal information through a combination of overt and covert means. For example, BGI, a major Chinese biotech company operating a large-scale genomic biobank, collaborates closely with the People's Liberation Army and collects genomic data worldwide. BGI was eventually subjected to sanctions by the Department of Defense, but not before forming partnerships with American institutions in a probable attempt to collect commercial data streams for use by the Chinese government. To make matters worse, China's national security law often compels companies to share data with the government, creating a pre-existing gateway to security and privacy nightmares.
This collection and potential exploitation of sensitive American health data adds a new and dangerous dimension to China's geopolitical arsenal. It's no longer just about controlling the physical production of drugs, but also about dominating the information that drives the medicine of the future, with direct implications for surveillance, innovation, and national security.
5. How Xi Jinping Could Leverage Pharmaceutical and Health Data Asymmetry
Xi Jinping's strategy to exploit asymmetry in the pharmaceutical supply chain and control over sensitive data could manifest in various forms, replicating and adapting the tactics observed with rare earths.
5.1. Direct Restrictions on API and KSM Exports
The most immediate and disruptive measure would be the imposition of restrictions, slowdowns, or targeted bans on the export of key APIs and/or KSMs to specific countries (e.g., the United States, G7 allies).
Mechanism: This could occur through the sudden implementation of export quotas, the introduction of new export licenses with slow and discretionary approval processes, or even total bans for specific API categories.
Immediate Impact: The consequence would be a critical shortage of essential medicines (antibiotics, painkillers, drugs for chronic diseases) within weeks or a few months, given the limited stock-piling capacity of many countries. This would trigger a public health crisis, a surge in drug prices, and widespread social discontent.
Paralysis of the Pharmaceutical Sector: Pharmaceutical companies (even those producing in the West) would be unable to formulate and package their drugs without Chinese APIs or KSMs, leading to production stoppages and massive economic losses.
5.2. Strategic Price Increases
A more subtle yet effective tactic would be a significant and targeted increase in the prices of exported APIs, particularly to target countries.
Systemic Economic Pressure: This would drive up global drug production costs, exerting inflationary pressure on healthcare systems and national budgets, which are already under strain.
Competitive Disadvantage: It could make generic drug production unprofitable for many companies, forcing them to cease production or dramatically increase consumer prices.
5.3. Standards and Regulatory Compliance as Leverage
China could use quality standards and regulations as a tool for pressure:
Targeted Controls and Delays: Sudden introduction of new inspection requirements, more frequent audits, and delays in quality certifications or export approvals for "unfavored" recipients.
Impact on Compliance: This would generate regulatory uncertainty and complicate production planning for global pharmaceutical companies, making sourcing from China riskier.
5.4. Exploitation of Sensitive Data as a Geopolitical Tool
Access to and control over American health and genomic data offer additional leverage:
Innovation Advantage: Analysis of this data can accelerate the discovery of new drugs and the development of precision medicine by Chinese companies, allowing them to surpass American innovation and further consolidate their dominance in the future pharmaceutical sector.
Surveillance and Intelligence: Health data can be used for surveillance and intelligence purposes, providing China with detailed information on the health and potential vulnerabilities of segments of the population or specific individuals in the United States.
Technological Influence: Control over data can also influence the development of artificial intelligence algorithms for medical applications, giving China a strategic advantage in the field of digital health.
5.5. Geopolitical and Strategic Consequences
The combined use of the "pharmaceutical card" and the "data card" would have profound geopolitical consequences:
Multidimensional Asymmetric Coercion: This would offer Xi Jinping a lever of asymmetric coercion with enormous impact, difficult to counteract with traditional means in the short term, by acting on both the physical availability of drugs and the capacity for innovation and data security.
Economic, Humanitarian, and Cyber Warfare: This would constitute a form of economic warfare with direct and severe humanitarian and privacy consequences, confronting Western governments with difficult choices: yield to Chinese demands or face an internal health crisis and a compromise of their citizens' data security.
Acceleration of "De-risking": If implemented, this move would inevitably accelerate global efforts toward "de-risking" and diversification of supply chains. However, as demonstrated by rare earths, this process is extremely costly, slow, and does not guarantee complete independence in the short to medium term.
Reputation and Long-Term Consequences: Such a drastic action would severely damage China's reputation as a reliable long-term trading partner, but Xi Jinping might be willing to accept this cost to achieve perceived higher geopolitical objectives.
Conclusion: A Multidimensional Threat
Chinese dominance in the pharmaceutical supply chain, combined with the ability to exploit sensitive health data, poses a strategic and multidimensional threat to the United States. This leverage, acting on both the physical availability of drugs and the capacity for innovation and data security, gives Xi Jinping far-reaching asymmetric power in the trade war.
Against a backdrop of rising tensions between the two superpowers, with ongoing trade tariffs and recent issues regarding Taiwan “throwing gasoline on the fire,” the realization of a scenario in which China restricted pharmaceutical supplies or exploited health data would result in unprecedented escalation, turning economic dependence into a direct threat to human security and individual privacy. To mitigate this risk, the U.S. and its allies urgently need to undertake coordinated efforts and substantial investments in “de-risking,” “reshoring” critical manufacturing and data protection, recognizing that health security, data security and national security are now interconnected pillars.
댓글