Trade war tariffs now touch nearly every U.S. medical device sold in China

The trade war between the U.S. and China has grown in both size and scope—with Chinese retaliatory tariffs now reaching nearly every U.S. medical device exported to the country—while uncertainty over the years ahead has companies looking to prepare against larger impacts.

At midnight EST on Monday, Sept. 24, or noon in Beijing, the Trump administration imposed 10% tariffs on $200 billion worth of imports. At the same time, China returned with 5% to 10% tariffs on $60 billion of U.S. goods, including $3.5 billion in medtech-related trade.

Added to tariffs levied this past summer, the latest round totals nearly all U.S. medtech exports to China in 2017, or about $4.75 billion, according to AdvaMed, the industry’s trade association.

“Depending on where you are in the industry, the tariff situation and related activities will impact you differently,” AdvaMed CEO Scott Whitaker told reporters during a press event at the trade group’s annual conference. For example, companies in the imaging space may feel a more direct impact because of reliance on component parts, he said.

In addition, because of the disparity in the total dollar amounts between the two countries, China also threatened to impose extra, unspecified, non-tariff barriers with more qualitative effects—such as slow-walked regulatory approvals or possible investigations into various companies’ operations within the country.

Meanwhile, the latest $200 billion in tariffs on imports from China are slated to increase from 10% to 25% on Jan. 1, after the holiday shopping season. President Donald Trump has also called for an additional $267 billion in tariffs on top of that, totaling essentially all of China’s exports to the U.S., depending on the country’s actions going forward.

“As the number as gotten bigger, and as the back and forth between China and the U.S. has grown, we're starting to see it impact us a little bit more,” Whitaker said. “When you get to $200 billion, and when you get to $267 billion, then you're really starting to affect all aspects of the economy.”

AdvaMed is currently working to assess the tariffs' impact by company and product category, and is aiming to release a report in the coming months, Whitaker said. China’s retaliatory tariffs first hit the industry directly in late August, with a matching $16 billion riposte against U.S. exports that included $1.25 billion against medtech products.

At the association’s conference in Philadelphia, Claire Reade, former assistant U.S. trade representative for China affairs, detailed companies’ options for navigating the new U.S. tariffs, such as applying for exclusionary waivers for specific products.

Companies would have to prove no comparable product exists outside of China, that Chinese supply has been critical to the company’s efforts over the past several years and that losing that access would cause severe harm.

In addition, the product has to be physically distinct from other products under the same tariff category—trademarks or logos are not enough, said Reade, who also served as the Office of the U.S. Trade Representative’s chief counsel for China trade enforcement. She is now a senior counsel at the law firm Arnold & Porter.

Aside from that, three options include absorbing the tariffs, such as by building up the company’s stock of products; adjusting procurement to other locations, including non-Chinese plants from a Chinese supplier or from other parts of the world; or by changing the company’s manufacturing footprint through shifts to contract manufacturing or setting up new plants, said Rene Buck, CEO of Buck Consultants International.

But what should companies not do? “There are a bunch of Chinese companies today on the internet that will offer to bring your products to Malaysia, label them as 'Made in Malaysia' and then send them over,” Buck warned of the illegal bypass. “You could imagine cases where that might be appealing, but probably we both agree it’s not what you should do, right?”

Reade added: “Criminal customs fraud. Prison. Major fines. Okay? Okay.”