Digital Manufacturing: A Lifeline for Medtech Amidst New Tariff Hikes

The U.S. is raising tariffs on medical products imported from China as part of the Biden administration's broad-sweeping tariff hikes announced last week.

With tariffs on syringes and needles jumping from 0% to 50%, and similar increases for other critical medical supplies, manufacturers are grappling with the potential for disrupted supply chains and increased production costs. And it comes just as manufacturers are recovering from the global supply chain crisis that plagued industry during the COVID-19 pandemic.

"If you're in supply chain or operations, the last five years are unprecedented and I think that supply chain leaders have the hardest job in any company today," Dave Evans, CEO and co-founder of Fictiv, told MD+DI.

President Biden's administration has justified the tariff hikes as a necessary measure to protect American workers and companies from China's unfair trade practices, particularly in technology transfer and intellectual property. The tariffs are intended to encourage China to refrain from these practices while bolstering the U.S. domestic industrial base.

So, while tariffs on China-made goods didn't come as a total surprise, given ongoing geopolitical tensions and the current election year, Evans said the policy certainly has wide-ranging impacts for supply chain leaders that are still heavily reliant on China for the vast majority of their supply chain.

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The tariff rates on syringes and needles will increase from 0% to 50% in 2024. For personal protective equipment (PPE), including certain respirators and face masks, the tariff rates will increase from 0-7.5% to 25% this year. Tariffs on rubber medical and surgical gloves will increase from 7.5% to 25% in 2026.

The U.S. imported $14.05 billion in medical equipment in 2023, and has imported $14.99 billion so far this year, according to census data.

The American Medical Manufacturers Association (AMMA) supports the new tariffs, calling this a "pivotal moment in America's quest for self-reliance and true resilience, particularly in personal protective equipment and critical medical products."

Eric Axel, executive director of AMMA, said the organization anticipates the measures having a "transformative impact, invigorating the domestic manufacturing base, and safeguarding our nation's health and security."

The Biden administration noted that these increases will help support and sustain a strong domestic industrial base for medical supplies that were essential to the COVID-19 pandemic response, and continue to be used in hospitals across the company.

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President Joe Biden speaks from the Rose Garden of the White House on May 14 about new tariffs on Chinese imports. IMAGE CREDIT: Win McNamee / Staff / Getty Images News

"The federal government and the private sector have made substantial investments to build domestic manufacturing for these and other medical products to ensure American health care workers and patients have access to critical medical products when they need them," Biden's administration said in a statement. "American businesses are now struggling to compete with underpriced Chinese-made supplies dumped on the market, sometimes of such poor quality that they may raise safety concerns for healthcare workers and patients."

Meanwhile, FDA has been cracking down on poorly made plastic syringes coming in from China by urging Americans not to use them.

The tariffs could lead to higher costs and potential shortages on these critical medical supplies. It also means increased supply chain costs and volatility.

Tariffs on components frequently used in modern medical devices, such as semiconductor chips and batteries, and materials like aluminum, will also impact the medical device supply chain.

While reshoring and nearshoring offer attractive solutions for some U.S.-based manufacturers, the benefits of that trend must be weighed against other factors, such as labor costs. Evans pointed out that there remains large labor rate discrepencies between China and the United States.

Related:How Is Medtech Impacted by a Strained US-China Relationship? A CEO Speaks Out

"So, even with tariffs you have a lot of supply chain teams that are going to be doing the math on landed cost with tariffs today," Evans said.

Tariffs help make a case for digital manufacturing

Image credit: gorodenkoff / iStock via Getty Images

Fictiv works with a wide spectrum of medical device companies from the likes of Medtronic, Johnson & Johnson, and Intuitive Surgical to innovative startups like TransMed7. Evans said Fictiv customers are leveraging its global supply network now more than ever.

"Supply chain leaders are building roadmaps that are taking into consideration geopolitical risk as part of their cost down efforts," he said.

Fictiv has developed a cloud-based digital manufacturing network that has helped its customers see cycle time gains of 40% or better, engineering productivity of 20% or more, and a significant reduction in operational costs associated with managing an inflated, fragmented supply chain.
TransMed7 serves as a case study that sets Fictiv apart from traditional contract manufacturers.

"Before they met us their typical development cycle was about six to seven years to make a medical device. We brought that down to a year," Evans told MD+DI in a 2022 interview. "...They built just over 40 injection-molding tools with us in seven months."

Digital manufacturing can reduce fixed costs, CapEx inventory, and overhead by enabling a just-in-time manufacturing approach.

"We've seen huge productivity gains you know when folks are leveraging digital versus a more traditional supply chain or contract manufacturing segment," Evans said.

Looking ahead, Evans predicts that ongoing trade and supply chain challenges will drive greater adoption of digital manufacturing technologies. He says that companies embracing digital solutions will gain a competitive edge, while those sticking to traditional methods risk falling behind.

"With all the turmoil that's happened in supply chain over the last five years there's no going back to what the status quo was," Evans said. "...What's slowly happening is now the larger tier [companies] are really starting to embrace this because their traditional supply chains are failing because of these risks."