Medical Product Makers Split Over Trump Tariffs

Introduction to Tariffs in the Medical Community

President Donald Trump’s tariffs are creating a divide in the medical community. Medical devices and protective gear made in China, Mexico, and Canada were exempt from duties during the first Trump administration, but so far have not gotten a reprieve from his newest round of levies. While device makers who would take a big hit from the tariffs are pushing for a new carve out, the makers of personal protective equipment — who stand to benefit from the barriers — are not. The duties could also increase costs for hospitals — and therefore patients — and reduce access to critical equipment and care.

Concerns from Medical Technology and Device Makers

"MedTech supply chain leaders are already reporting supply chain concerns, and we cannot afford to drive up the cost of health care for patients, or on the health care system," said Scott Whitaker, CEO of AdvaMed, the trade group which represents medical technology and device makers. "The reality is, any increased costs will be largely borne by taxpayer-funded health programs like Medicare, Medicaid, and the VA." Hospital trade groups have also been sounding the alarm, saying that tariffs could reduce the quality of care. "The AHA has and will continue to share with the Administration, disruptions in the availability of these critical devices — many of which are sourced internationally — have the potential to disrupt patient care," said Rick Pollack, the CEO of the American Hospital Association.

Tariffs Add Pricing Complexity

Trump in February imposed 25% tariffs on imports from Canada and Mexico, but later delayed duties on many items that fall under the U.S.-Mexico-Canada Agreement. There has been no reprieve for goods from China. Trump’s new levies on imports from the country during his second term have brought the tariff rate up to 145%. Dozens of other countries face 10% tariffs after Trump delayed proposed steeper rates.

Medical Equipment Seller Squeezed

Many businesses can simply raise their prices to help offset increased costs from tariffs. That doesn’t apply to a range of hospitals and other organizations buying medical equipment. Many of those groups will have trouble passing on higher costs under current insurance coverage contracts, which they say have locked in prices for the year. "With the level of tariffs that we’re looking at in China, businesses are going to be completely upside down on these products … they can’t pass those costs on to the consumer," explained Casey Hite, CEO of Aeroflow Health, a firm which provides insurance-covered medical devices ranging from breast pumps for nursing mothers to CPAP machines for sleep apnea patients.

PPE Makers See Tariff Boost

On the opposite end of the tariff divide, U.S. companies that produce personal protective equipment have applauded the Trump administration’s latest levies on China. "I don’t know if it’s going to help the economy overall, but I do know that in our case, successive administrations — both Republican and Democratic — have recognized that these products are not competing on a level playing field," said Eric Axel, CEO of the American Medical Manufacturers Association, the trade group which represents PPE Makers. Analysts at Boston Consulting Group estimate roughly half of PPE used in the U.S. is produced in China, with roughly 10%-15% in Canada and Mexico.

The Challenges of U.S. Manufacturing

Trump has said he has imposed tariffs in large part to encourage manufacturing in the U.S. In the case of PPE, that may not happen. But near term, consulting firms say multinational producers are looking to shift manufacturing away from China to other countries with lower tariffs rather than bring it back to the U.S. "Managing that and the complexity there becomes super hard," explained Vikram Aggarwal, a BCG managing director and partner. For American-based medical device and protective gear manufacturers, one strategy now is to shift international production to Mexico and Canada, where they can potentially secure exemptions for products made under USMCA.

Impact on Major Medical Technology and Device Makers

Many of the major medical technology and device makers produce many of their goods in the U.S., but do have multiple points for manufacturing internationally. Analysts at Canaccord Genuity note Zimmer Biomet and Stryker, two of the largest makers of knee replacements, have dozens of facilities across North America, Europe, and Asia that help them navigate tariffs, but will still face a financial impact. Johnson & Johnson calculates that its MedTech division, which produces orthopedic and cardiac implants, could face a $400 million dollar tariff headwind this year, due in large part to the magnitude of duties on Chinese imports, as well as levies on non-USMCA compliant imports from Canada and Mexico.

Conclusion

The tariffs imposed by the Trump administration have created a divide in the medical community, with device makers pushing for a new carve out and PPE makers benefiting from the barriers. The duties could increase costs for hospitals and patients, reduce access to critical equipment and care, and disrupt the supply chain. While some companies may shift production to countries with lower tariffs, others may face financial impacts. The situation highlights the complexity of international trade and the need for careful consideration of the effects of tariffs on different industries and stakeholders.

FAQs

Q: What are the tariffs imposed by the Trump administration on medical devices and protective gear?
A: The tariffs imposed by the Trump administration on medical devices and protective gear range from 10% to 145%, depending on the country of origin and the type of product.
Q: How will the tariffs affect hospitals and patients?
A: The tariffs could increase costs for hospitals and patients, reduce access to critical equipment and care, and disrupt the supply chain.
Q: Which companies will be most affected by the tariffs?
A: Device makers, such as Zimmer Biomet and Stryker, and companies that produce PPE, such as Altor Safety, will be most affected by the tariffs.
Q: Will the tariffs encourage manufacturing in the U.S.?
A: The tariffs may not encourage manufacturing in the U.S., as companies may shift production to countries with lower tariffs rather than bring it back to the U.S.
Q: What is the estimated impact of the tariffs on Johnson & Johnson’s MedTech division?
A: The estimated impact of the tariffs on Johnson & Johnson’s MedTech division is a $400 million dollar tariff headwind this year.