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The imposition of tariffs by President Donald Trump is leading to a significant rift within the medical community.
During his initial term, imports of medical devices and protective gear originating from China, Mexico, and Canada were shielded from tariffs. However, the recent round of duties has not granted these items a similar exemption. While manufacturers of medical devices, facing potential financial strain from these tariffs, are advocating for a specific exemption, producers of personal protective equipment (PPE) appear to be benefiting from these trade barriers and are less inclined to support such measures.
The repercussions of these tariffs extend beyond manufacturers, with concerns that they may lead to increased costs for hospitals, patients, and reduce access to essential medical care.
Scott Whitaker, CEO of AdvaMed, a leading trade association representing medical technology firms, expressed that “MedTech supply chain leaders are already indicating concerns regarding the supply chain, and it is crucial that we do not inflate healthcare costs for patients or for the healthcare system at large.” He emphasized that any cost increases would predominantly affect publicly funded health programs, including Medicare, Medicaid, and the Veterans Affairs system.
Hospital associations are echoing these warning signs, asserting that such tariffs could compromise the quality of healthcare services. “The American Hospital Association (AHA) has consistently communicated with the Administration about the potential challenges posed by the availability of critical medical devices sourced internationally, which could negatively impact patient care,” stated Rick Pollack, the CEO of the AHA. He reiterated the organization’s stance for a tariff exemption for medical devices to ensure the continued provision of healthcare services to communities.
Tariffs complicate pricing structures
The situation is further complicated: while many businesses can raise prices to counterbalance the impact of tariffs, hospitals and healthcare providers often cannot, as they are bound by insurance contracts that set fixed prices for the year.
Casey Hite, CEO of Aeroflow Health, highlighted this discrepancy, stating, “Given the level of tariffs concerning China, many businesses find themselves financially strained by these products, as they cannot transfer those costs on to consumers.” Hite has been advocating for a comprehensive exemption from MedTech tariffs on Capitol Hill, seeking predictability in the regulatory landscape that would allow healthcare providers to prepare adequately.
PPE manufacturers gain from tariffs
Conversely, American manufacturers of personal protective equipment have welcomed the latest tariffs. Eric Axel, CEO of the American Medical Manufacturers Association, noted, “While it is uncertain whether this will bolster the economy as a whole, it is clear that successive administrations, from both sides of the aisle, have recognized the unbalanced competition we face regarding these products.”
Boston Consulting Group estimates that nearly half of the PPE utilized in the U.S. is sourced from China, with 10-15% produced in Canada and Mexico. The new tariffs are layered on top of existing duties initiated by the Biden administration, which included steep levies on importing syringes and needles from China—totaling a staggering 245% tariff.
Altor Safety, a U.S. manufacturer of masks and N95 respirators, views the tariffs as an opportunity to expand its market share, which has been hindered due to lower-priced competition from Chinese manufacturers subsidized by their government. Altor’s President Thomas Allen stated that the new tariffs might enable the company to secure new contracts while also improving production capacity to reduce its prices.
Obstacles in U.S. manufacturing growth
While Trump has aimed to bolster domestic manufacturing through tariffs, the practical outcomes seem to diverge from this goal. Consulting experts suggest that many multinational companies are more inclined to relocate production to other countries with reduced tariff barriers rather than shifting operations back to the United States.
“The complexity of managing these transitions creates significant challenges,” noted Vikram Aggarwal, a managing director at BCG. In response to the tariffs, some American manufacturers are pivoting their international production toward Mexico and Canada, where products might qualify for exemptions under the USMCA framework.
Major medical device manufacturers generally produce a portion of their goods domestically but maintain multiple international production sites. According to analysts at Canaccord Genuity, industry leaders like Zimmer Biomet and Stryker operate numerous facilities across North America, Europe, and Asia, allowing them to mitigate tariff impacts, though they will still face significant financial consequences.
J&J anticipates $400 million in tariff effects
Johnson & Johnson recently projected that its medical technology division, which includes orthopedic and cardiac implants, could incur a $400 million setback due to tariffs this year. This outcome stems primarily from the elevated tariffs on imports from China and additional duties on items that do not comply with USMCA standards from Canada and Mexico.
During a recent earnings call, CFO Joseph Wolk indicated that existing agreements with hospitals pose challenges in raising prices in the near future. Looking ahead, CEO Joaquin Duato articulated that the disruptive nature of tariffs is counterproductive for fostering domestic manufacturing growth. He argued, “If the goal is to enhance manufacturing capacity in the U.S., particularly in MedTech and pharmaceuticals, effective tax policy, rather than tariffs, is the appropriate approach,” highlighting the company’s commitment to investing $55 billion over four years to expand its U.S. manufacturing capabilities.
Duato further emphasized that tax incentives are more viable tools for enhancing manufacturing capacities in the U.S., benefiting both MedTech and pharmaceuticals sectors.
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