Why US mask makers are going bankrupt

Why US mask makers are going bankrupt

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Mike Bowen has spent much of the pandemic saying, “I told you so,” and you can hardly blame him. In 2005, as low-cost Chinese manufacturers took 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 way to ensure resiliency — a way to ensure domestic supply in the event of a supply chain failure.

“Every company had left America,” he recalled recently. “The entire US supply of masks was under foreign control.” He remembers warning customers: “If there’s a pandemic, we’re going to be in trouble.

At first, Bowen’s sales pitch didn’t have much success. But in 2009, the swine flu virus caused a shortage of masks in the United States. Suddenly, Prestige Ameritech had many customers. “We’ve gone from 80 employees to 250,” says Bowen. “The phones kept ringing. We said to ourselves: ‘People finally understand. We will fix this problem.'”

He was wrong. As soon as the swine flu pandemic ended, the company’s new customers started buying cheap masks in China again; Chinese manufacturers soon controlled 90% of the US market. “The cost savings were like crack for American hospitals,” Bowen said.

Even so, Mr. Bowen never stopped telling anyone who would listen that the relocation of personal protective equipment – ​​which includes nitrile gloves, hospital gowns and respirators, as well as surgical masks – would create big problems for the United States the next time it faced a pandemic.

Which, of course, is exactly what happened. Just weeks after the start of the Covid-19 pandemic in 2020, the supply chain for protective equipment had broken down, creating severe shortages that were costing lives. A black market has emerged, full of swindlers and get-rich-quick schemers.

A handful of American entrepreneurs have decided to do their part by making masks.

In Miami, a family-owned surgical device company, DemeTech, has spent millions of dollars expanding its facilities, building machines and hiring hundreds of employees; in the fall of 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 company, used his severance package to help start a mask manufacturing company 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 manufacture KN95 respirators.

It is difficult to know precisely 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 that Mr. Bowen experienced in 2009. At first, customers who could no longer obtain masks through their normal supply channels were knocking on their doors. The same was true during the Delta and Omicron waves, when masks were also scarce.

But as soon as the waves peaked and Chinese companies, determined to regain market share, started exporting masks at a loss, the customers disappeared.

“All the hospitals, government agencies and retailers begging for American products suddenly said, ‘We’re good,'” Mr. Hickey said.

Today, these small American mask makers are in dire straits – if they haven’t already gone bankrupt. DemeTech has laid off almost all of the employees it hired to make masks and shut down most of its mask manufacturing center. Mr. Olmos, his long-time severance payee, expects Texas MedPlast to be bankrupt soon, barring a miracle. And PuraVita Medical? “We’re about to lose everything,” Mr. Hickey told me.

The government’s response to this model is its own purchasing power. During his State of the Union address on Tuesday evening, President Biden promised that the government would begin to rigorously enforce provisions of the law that call on federal agencies to buy American-made products whenever possible. .

“Everything from the deck of an aircraft carrier to the steel for highway guardrails” would be made in America, he promised.

The plight of these small mask companies, however, suggests that reviving American manufacturing — even when the underlying rationale is national security — won’t be easy.

“Resilience is the buzzword 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 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 gear is acceptable 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 in the next pandemic, and the one after.

But how do you create this resilience? The federal government spent $682 billion in purchases of goods and services of entrepreneurs in 2020, according to the Bloomberg government. This is the sum the Biden administration wants to use to buy American products. And while it’s hardly a bargaining chip, it’s only about 3% of America Savings of $21.5 trillion.

The mask makers I interviewed for this article said the Biden administration has expressed interest in buying their masks, but that hasn’t happened yet. Even if it did, it would be unlikely to start much of Chinese dominance. As Mr. Bowen said in a recent email to the White House, “hospitals are driving the mask market.” Since their incentives are to cut costs, he wrote: “Any plan that allows imported masks to cost less than masks made in the United States will result in a supply of American masks being controlled by a foreign government – ​​as some currently exist.

In other words, the modern imperative to maximize shareholder value will always put efficiency and cost above resilience.

Mask makers are a microcosm of a larger problem. Today, shortages go far beyond personal protective equipment. Things as diverse as semiconductors and garage doors are in short supply – all products whose manufacturing has been offshored in recent decades as American companies embraced just-in-time supply chains and a labor intensive workforce. cheap foreign work. Economists and business leaders have ignored resilience, and now the country has no clear idea of ​​how to create it, even as its necessity has become apparent.

Mr. Bowen told me that the problem of small US mask makers could be solved either by banning imported masks or by warning hospitals that they would be legally liable if their purchases of imported masks meant they could not protect their staff or patients in the future. emergency. He also acknowledged that neither situation was realistic.

At the start of the pandemic, in an effort to ensure access to essential supplies during crises, the Japanese government allocated $2.3 billion in subsidies to companies that moved manufacturing to Japan from China. The U.S. federal government could take a similar approach, allowing U.S. mask makers to match Chinese prices. The problem is that if the government subsidized every vital product that required supply chain resilience, it would become terribly expensive.

Despite the president’s vow to have the government buy Americans, the most likely scenario remains what it has been for months: Small mask makers will go bankrupt, hospitals will continue to import Chinese masks — and the country will be taken aback again when the next pandemic arrives.

What do you think? Should the government do more to protect American manufacturers of essential supplies? What would be most effective? Let us know: [email protected]