Tariffs at Both Points of The Supply Chain (in the United States and in China) Run the Risk of Cost Inflation for the Companies that Have Manufacturing Units in Either Country
As the US-China Tariff War continues to escalate, the Transformational Healthcare Team at global research firm the publisher has made available an insight analysis exploring the threats and opportunities for US businesses in China. The insight analysis also examines the timeline and causes of the tariff war and explores why medical technology (MedTech) is included in the United States’ new tariff policy.
The United States is the world’s largest medical technology importer, and China is its fourth-largest supplier. The tariff war is anticipated to create a ripple effect that will impact healthcare systems as costs rise. An unanswered question is who eventually absorbs the increase in costs of medical devices.
The publisher's analysis suggests that manufacturers may absorb the costs for high-value medical devices, such as MRI and CT machines, passing some of those costs on to hospitals. For low-end products, especially consumables, customers will end up paying more.
Given the massive growth opportunity with China’s domestic market, the tariff war is not going to impact the planned investments of US companies in the Chinese MedTech industry. However, an uneven playing field favoring domestic companies over foreign ones can abate long-term optimism for the Chinese market. About 80% of US origin businesses operations in China indicated that the uneven playing field favoring domestic companies over foreign ones is making it increasingly difficult for US companies to compete in the Chinese market.
Tariffs at both points of the supply chain (in the United States and in China) run the risk of cost inflation for the companies that have manufacturing units in either country, which may eventually lead to an escalation in patient care costs across many countries. As a consequence of the US tariffs on China, other low-cost manufacturing destinations such as Malaysia, Vietnam, and Costa Rica will see a moderate increase in manufacturing activity with some companies expected to shift operations to these destinations. It is critical for US MedTech OEMs to evaluate the total cost of ownership as they examine alternative sourcing destinations. Additional regulatory considerations, such as FDA requirement for the supplemental submission for supplier change affecting changes to input could lead to delays of several months.
The publisher finds that next year’s presidential election in the United States will be pivotal to the future of the ongoing US-China tariff war. Not surprisingly, healthcare is highly debated political issue. With the anticipated price transparency rules to take effect during 2020, dealing with the US-China tariff related inflation for the US healthcare industry will be a high-priority agenda for the newly elected president.
