Is Medtech Downplaying the Impact of Trump Tariffs?Is Medtech Downplaying the Impact of Trump Tariffs?

Donald Trump has said he will implement 25% tariffs on Mexico and Canada, as well as an additional 10% tariff on products from China on his first day in office. This is something that should be a top concern among medical device manufacturers, but many of the largest medtech players are downplaying the tariffs issue.

Medtronic CEO Geoff Martha said during the company's earnings call on November 19 that it was too early to speculate about different policies related to the president elect.

"We're running different scenarios here, obviously, in preparing for different scenarios, but I don't want to get into that speculation," Martha told analysts during the call. "In terms of our exposure to importing products from China, it's small; it's less than 1% of our revenue."

Baxter CEO Joe Almeida also said the impact of additional tariffs on China would be "quite small" for Baxter, meaning less than 2% of the company's sales. That said, the company does rely on China for raw materials, as does much of the medical device manufacturing industry.

"The tariffs that we're talking about here would be very much related to raw materials; they will be chips that we still buy there and other things that will impact the industry in general," he said during an earnings call on November 8. "But we do not make specifically products in China for the U.S."

Related:The Impact of Tax Policy & Legislative Action on the Manufacturing Sector

Other medtech manufacturers, such as Danaher, have supply chains setup to where manufacturing capacities in China supply China, Danaher CEO Rainer Blair said at an investor event hosted by Evercore ISI on December 4.

"We have a region-for-region supply chain," Blair said.

While large medtech firms downplay the risks, the global supply chain crisis showed how even seemingly isolated operations can feel ripple effects from global disruptions. For instance, during the pandemic, a senior executive at a major manufacturer believed their operations wouldn't be affected by China's shutdowns. But better visibility into the depths of their supply chain would have shown that one of their suppliers several levels down was buying materials from China.

I'm also concerned about smaller medtech businesses that might feel the impact of Trump's proposed tariffs even more than the larger players.

Then there's the cost factor to consider, as manufacturers are likely to pass on the excess costs from tariffs to their customers, including healthcare providers. Ultimately, these costs will trickle down to patients, who may face higher out-of-pocket expenses or reduced access to critical medical devices.

Related:Outsourcing Is Crucial for Success in Medtech & Healthcare

GlobalData, a data analytics and consulting firm based in London, England, predicts that roughly 75% of medical devices sold in the United States will see a price increase due to Trump's proposed tariffs. About 69% of medical devices on the U.S. market are manufactured exclusively outside of the country, according to GlobalData.

"Companies will be forced to increase prices to make up for losses incurred by the proposed tariffs," said Aidan Robertson, a medical analyst at GlobalData. "Additionally, this may cause supply chain disruptions, reducing accessibility to medical devices and inflating the cost of these products due to the higher demand in comparison to the supply."

There are some effective ways to mitigate the impact of the proposed tariffs for medtech companies that are concerned about it, such as diversification of operations, reshoring and nearshoring, and advanced manufacturing technologies such as digital twins and predictive analytics, but most of these techniques require time and upfront investments.

Maybe larger medical device manufacturers are less concerned about the impact of increased tariffs on products coming into the United States, but they should be taking it more seriously than they currently appear to be. If nothing else, these larger players should be concerned about how this macroeconomic issue will impact the industry as a whole, including smaller innovators that are more vulnerable.

Related:Using Computational Modeling & Simulation Could Help Get Products to Patients Faster

Medtech companies, large and small, must take a proactive approach to navigate this looming challenge—because when supply chains falter, it's patients who pay the price.