As the world’s largest manufacturer of medical devices, the U.S. industry faces a $5 billion hit from new Trump administration tariffs, it is predicted by experts, out of a total $50 billion market effect for the first year. A tariff is a tax on imports or exports between sovereign states. These tariffs are expected to increase manufacturing costs, making prices less competitive and significantly damaging global sales for U.S.-made medical devices.
According to the Economic Census in 2012, (the most recent available; the 2017 census is underway) the sector employs about 356,000 people at approximately 5,800 companies, paid median salaries 15 percent higher than the average manufacturing job. More than 80 percent of U.S. medical device companies employ fewer than 50 employees, and many of the most innovative medtech startups produce little to no revenue for their first few years.
On March 1, the Trump administration announced new tariffs against China, including 25% tariffs on imported steel and 10% tariffs on imported aluminum. The tariffs are theoretically justified by an investigation, which found that domestic production would not be adequate during a national security crisis.
Given that the U.S. is the world’s largest importer of steel, the tariffs are expected to have a robust effect on many manufacturers. In 2016, the U.S. imported 30 million metric tons of steel and 6.3 million metric tons of aluminum. The taxes will increase production costs, in turn making many products more expensive for patients.
Within a global market size of around $150 billion, U.S. makers capture about 40 percent. Exports of medical devices in key product categories identified by the Department of Commerce exceeded $44 billion in 2015.
Industry officials are reported as being “surprised and disappointed” by the situation, especially because the federal report used to justify the increases as rectifying unfair Chinese trade practices didn’t even mention medical technology.
These tariffs are expected to have little effect on China. Industry experts, domestic and international, believe that the tariffs will suppress American industrial growth, rather than boost it, condemning the new tariffs as a threat to global free trade.
A day after the U.S. announcement, China responded with its own set of tariffs on 545 U.S. products imported to China (with another 114 categories to be affected during a second phase) including basic chemicals and medical devices, such as magnetic resonance imaging (MRI) machines. Experts fear escalating measures might trigger a global trade war.
As the new steel and aluminum tariffs increase costs for American companies, Asian medtech competitors will win a greater market share by manufacturing similar, but often lower quality, devices at lower cost. Japan, China, and Korea are most likely to benefit. Asian medtech competitors sell globally, so it is likely that U.S. international medtech sales will be hurt.
Scientific research here could also suffer damage from our trade dispute with China, as the higher cost of manufacturing medical devices from syringes to MRI machines in turn raises the cost of research. U.S. labs are bracing for a keen effect.
America’s medical device industry is already in a period of slowed growth from recent innovation being based more on data science than the invention of new products, a trend expected to continue. As a family-owned manufacturer of high-quality medical devices, we will continue to monitor and report on this issue, so critical to the health of every patient.