What will a trade war mean for medtech?
Medical device industry executives have a lot to like so far when it comes to President Donald Trump and the Republican Congress: U.S. corporations got a big tax cut, the moratorium on the 2.3% medical device excise tax has been extended to 2020, and Dr. Scott Gottlieb is proving himself to be the business-friendly FDA commissioner everyone thought he would be.
A trade war with China, however, could end the party.
Trade spats Trump started with Canada and the European Union could matter, too, but the disagreements so far have not focused on medical devices, explains Greg Crist, executive VP of public affairs at trade group AdvaMed.
The escalating trade war with China is a different story. Under its “Made in China 2025” plan, the Chinese government seeks explosive growth in biomedical and high-end medical device manufacturing. So the Trump administration has included finished medical devices in the billions of dollars in tariffs the U.S. Trade Representative has levied against China.
The irony is that a decent chunk of the medical devices made in China and imported into the U.S. are actually made by U.S. medical device companies.
“U.S. medical device companies have benefitted from setting up factories in China,” Grace Palma, CEO of China Med Device, told Medical Design & Outsourcing. “With five times the U.S. population and low healthcare standards, as well as a very under-developed medtech industry, most of the large U.S. companies have benefitted from setting up local factories [in China] to reduce cost and provide easier access to local populations.”
As of this writing, medtech faced a nearly $1 billion hit from U.S. tariffs imposed against China, according to AdvaMed. That estimate doesn’t include items such as circuit boards and other components that go into medical devices.
China so far hasn’t targeted medical devices in its retaliatory tariffs, according to Palma.
It’s also worth noting that some of the major contract manufacturers serving the industry, including Integer and Phillips- Medisize, have facilities around the world. So it isn’t just the big legacy medical device companies that are vulnerable to international trade disputes.
Other top stories for the medical device industry during the first half of 2018 included:
- GE announces plans to spin out its GE Healthcare business, which has long been a money-maker for its parent. GE Healthcare chief Kieran Murphy is slated to stay on board the $19 billion enterprise, with the spinout expected to take 12 to 18 months.
- In early June, the Wall Street Journal posts a report claiming that orthopedic giant Stryker was looking to buy Boston Scientific in a deal that would have created a company worth approximately $110 billion. The rumors send Stryker shares down and BSX stocks up, only to be dismissed after two days by Stryker.
- IBM Watson Health reportedly lays off between 50% to 70% of its workforce in May due to a softening market for value-based healthcare offerings. A number of reports from ex-employees seemed to reflect that major layoffs occurred across not only Watson Health, but also from acquisitions it had made earlier including Merge Healthcare and Truven Health Analytics.