Mike Bowen has spent much of the pandemic saying, “I told you so,” and you can hardly blame him. In 2005, just as low-cost Chinese manufacturers were taking over the personal protective equipment industry, Bowen joined a friend who had started a small surgical mask company called Prestige Ameritech. The plan was to market his company’s masks to U.S. hospitals and distributors as a means of providing resilience — a means of ensuring domestic supplies should the supply chain ever collapse.
“Every company had left America,” he recently recalled. “The entire US mask supply was under foreign control.” He recalls warning customers, “If there’s a pandemic, we’re going to be in trouble.”
At first, Bowen’s sales pitch was not very successful. But in 2009, the swine flu virus in the United States caused a mask shortage. Suddenly, Prestige Ameritech had a lot of customers. “We’ve gone from 80 employees to 250,” Bowen says. “The phones were ringing. We thought, ‘People are finally getting it. We are going to solve this problem.’”
He was wrong. Once the swine flu pandemic was over, the company’s new customers went straight back to buying cheap masks from China; Chinese manufacturers quickly controlled 90 percent of the US market. “The cost savings were like crack cocaine for US hospitals,” said Mr Bowen.
Yet Mr Bowen never stopped telling anyone who would listen that the offshoring of personal protective equipment — including nitrile gloves, hospital gowns and respirators, as well as surgical masks — would cause major problems for the US the next time it faces a pandemic.
Which, of course, is exactly what happened. Just weeks after the Covid-19 pandemic in 2020, the protective equipment supply chain had broken down, creating severe shortages that cost lives. A black market emerged, full of scammers and get-rich-quick schemes.
A handful of American entrepreneurs decided to do their part by making masks.
In Miami, a family-owned surgical instrument company, DemeTech, spent several million dollars expanding its facilities, building machines and hiring hundreds of workers; by fall 2020, it was capable of producing five million masks a day, according to Luis Arguello Jr., the company’s vice president. “We took a risk as a family,” he said.
In Houston, Diego Olmos, a manufacturing expert who had recently left a multinational corporation, used his layoff to help set up a mask factory called Texas Medplast. “My business partner and I said, ‘This is the right thing to do,'” he said.
In Lindon, Utah, an entrepreneur named Paul Hickey helped found PuraVita Medical to make KN95 respirators.
Understand the supply chain crisis
It is difficult to know exactly how many of these companies were born during the pandemic; 36 of them are members of the American Mask Manufacturer’s Association, which they formed to lobby Washington. Virtually all of them experienced the same boom-and-bust phenomenon that Mr. Bowen in 2009. In the beginning, customers who couldn’t get masks anymore through their normal delivery channels smashed through their doors. The same was true during the Delta and Omicron waves, when masks were also scarce.
But once the waves hit and Chinese companies, determined to regain market share, started exporting below-cost masks, the customers disappeared.
“All the hospitals, government agencies and retailers that had begged for American products suddenly said, ‘We are good,’” said Mr. hickey.
Today, these small American mask makers are in trouble — if they haven’t already gone out of business. DemeTech has laid off nearly all the workers it has hired to make masks, and it has closed most of its mask manufacturing center. mr. Olmos, who has long since been fired, expects Texas MedPlast to go bankrupt soon unless a miracle happens. And Pura Vita Medical? “We’re about to lose everything,” Mr. Hickey told me.
The government’s response to this pattern is its own purchasing power. During his State of the Union address on Tuesday evening, President Biden promised that the administration would rigorously enforce provisions in the law that urge federal agencies to buy U.S. products whenever possible.
“Everything from the deck of an aircraft carrier to the steel on the highway guardrails” would be made in America, he vowed.
However, the plight of these small mask companies suggests it won’t be easy to revive US manufacturing — even if the underlying rationale is national security.
How the supply chain crisis unfolded
The pandemic caused the problem. The highly complex and interconnected global supply chain is in turmoil. Much of the crisis has been traced to the Covid-19 outbreak, which led to an economic slowdown, mass layoffs and a shutdown of production. This is what happened next:
“Resilience is the word of the day,” said Marc Schessel, a hospital supply chain expert who works to develop alternative supply chains for personal protective equipment. And resilience — that is, creating additional manufacturing capacity that can help the country through an emergency — is what the small mask makers say is their value to the country. Of course, they argue, a globalized, just-in-time supply chain for low-cost protective equipment is fine in ordinary times. But we’ve learned over the past two years that the country needs domestic manufacturers if we hope to avoid dire shortages during the next pandemic, and the one after that.
But how do you create that resilience? According to the Bloomberg government, in 2020 the federal government spent $682 billion buying goods and services from contractors. That’s the amount the Biden administration wants to use to buy American products. And while it’s hardly change, it’s only about 3 percent of the US $21.5 trillion economy.
The mask makers I interviewed for this article said the Biden administration had expressed an interest in purchasing their masks, but it has yet to do so. Even if it did, it would be unlikely to be a major dent in Chinese dominance. As Mr Bowen put it in a recent email to the White House, “Hospitals are boosting the mask market.” Because their incentives are to cut costs, he wrote, “Any plan that would make imported masks cost less than US-made masks will result in a foreign-government-controlled US mask supply — as it currently exists.”
In other words, the modern need to maximize shareholder value will always prioritize efficiency and cost over resilience.
The mask manufacturers are a microcosm of a bigger problem. Today there are shortages that go well beyond personal protective equipment. Things as diverse as semiconductors and garage doors are in short supply — all products whose production was moved offshore in recent decades as American companies embraced just-in-time supply chains and cheap foreign labor. Economists and business leaders ignored resilience, and now the country has no clear idea how to create it, even though its necessity has become apparent.
Mr Bowen told me that the problem for small US mask makers could be solved by banning imported masks or informing hospitals that they would be legally liable if their purchases of imported masks meant they would not give their staff or patients a chance in the future. could protect emergency. He also acknowledged that neither situation was realistic.
Early in the pandemic, in an effort to access essential supplies during crises, the Japanese government allocated $2.3 billion in subsidies to companies that moved production from China to Japan. The US federal government could steer a similar course, allowing US mask makers to match Chinese prices. The problem is that if the government subsidized every essential product that requires supply chain resilience, it would become very expensive.
Despite the president’s vow to let the government buy American ones, the most likely scenario remains what it has been for months: The small mask makers will go out of business, hospitals will continue to import Chinese masks – and the country will get caught again when the next pandemic coming.
What do you think? Should the government do more to protect US manufacturers of essential supplies? What would be most effective? Let us know: dealbook@CBNewz.
