Trump’s Tariffs: Effects on the Medtech Industry
On March 1, 2018, the Trump Administration announced new tariffs, including 25% tariffs on imported steel and 10% tariffs on imported aluminum. The tariffs are, in theory, justified under Section 232 Investigations, which found that the U.S. domestic production capacity was not adequate in case of a national security crisis. This allowed President Trump to invoke Article 21 of the General Agreement on Tariffs and Trade (GATT). The tariffs will undoubtedly have a large impact given that the U.S. is the world’s largest importer of steel. In 2016, the U.S. imported 30 million metric tons of steel and 6.3 million metric tons of aluminum respectively.
Despite President Trump’s rhetoric towards reducing the trade deficit with China, these tariffs have little effect on China (which is the 11th largest steel supplier to the United States), but do affect U.S. trade with other friendly trading partners. The top steel suppliers to the United States are Canada, Brazil, South Korea and Mexico. The top aluminum suppliers are Canada, Russia and the UAE. Many industry experts across the domestic and international spectrum believe that the cost of the tariffs is likely to have greater consequences than its rewards, and have condemned the new tariffs as a threat to global free trade.
South Korea, one of the largest steel suppliers to the United States, was able to come to an agreement with the country to avoid the tariff. Amendments to the bilateral U.S.-Korea Free Trade Agreement (KORUS FTA) is expected to be finalized soon. The United States has temporarily exempted other trading partners, such as Canada, Mexico, the EU, Australia, Argentina and Brazil, up to May 1, 2018, until other terms can be negotiated.
Reaction to the Tariffs in Asia
Many Asian countries immediately conveyed their concerns following the Trump administration tariff announcement. The Chinese Foreign Ministry spokeswoman, Hua Chungying, said, “China urges the United States to show restraint in using protective trade measures, respect multilateral trade rules, and make a positive contribution to international trade order.” The Japanese Trade and Industry Minister, Hiroshige Seko, commented, “I don’t think exports of steel and aluminum from Japan, which is a U.S. ally, damages U.S. national security in any way, and we would like to explain that to the U.S.” Similarly, regarding the connection between tariffs and national security, the executive director of the Asian Trade Centre and senior fellow in the Singapore Ministry of Trade and Industry’s Trade Academy, Deborah Elms, indicated that “By using ‘national security’ as the justification for what is basic protectionism, it opens the gates wide open for every other country in the world to do the same.”
Impact of the Tariffs on the Medtech Market
One industry that will be greatly impacted by the tariffs is the medical technology industry. Although medical devices use various metals like titanium, copper, and nickel, steel is another common material. Stainless Steel 304, a specific type of steel, is particularly suitable to manufacture medical devices due to its strength, hardness, good formability, manufacturing precision, corrosion resistance, and ease of sterilization. Medical devices that use stainless steel include precision stainless steel tubing, orthopedic implants, artificial heart valves, bone fixation, metal injection molding, and 3-D metal printing devices. While this list highlights some devices that rely on stainless steel, it is by no means exhaustive or comprehensive.
Aluminum is also a commonly used metal in medical devices. It has a strong reputation for its light weight, relatively low cost, machinability, recyclability and absorption properties. In terms of medical device innovation, aluminum offers shorter lead times and flexible designs for extrusion tooling. Aluminum is often used to extrude various tube shapes for disposable surgical devices and diagnostic tools. A few examples of products that contain high aluminum content include surgical cases, trays, containers, stethoscopes, MRIs and X-ray machines.
In the cases of both steel and aluminum, the import tariffs would increase the input costs of medical device production in the United States, and many medical device products will likely become more expensive.
According to a recent article published by the MinnPost, Minnesota’s medtech market could be greatly affected by the tariffs. Minnesota is home to one of the largest number of medical technology companies in the nation. Companies range from device giants like Medtronic to dozens of small- to medium-size enterprises that employ more than 16,000 workers. Most of these firms manufacture the types of medical device products where aluminum and stainless steel are common materials needed for production. Frank Jaskulke, vice president of the Medical Alley Association, warned that if the price of steel increases, it would increase the price of everything from high-tech devices to simple hospital equipment. Other large medtech hubs like Boston or California will likely also feel this pain.
Recent Developments
In addition to the steel and aluminum tariffs, on March 22, 2018, President Trump announced plans to impose $60 billion of tariffs on imports from China. In response, China has proposed putting $3 billion of tariffs on 128 U.S. products. Experts fear that these escalating measures might trigger a global trade war.
The new steel and aluminum tariffs will make it more expensive to produce medical devices in the United States. As a result, this will make Asian medtech competitors that make similar products more attractive, since oftentimes they can manufacture similar devices at lower cost. Japan, China and Korea are leading medical device manufacturing hubs that will likely be able to benefit from lower prices when selling to the international markets. Since these Asian medtech competitors sell globally, it is likely that the U.S. international medtech sales will be hurt.
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