Medical product manufacturers are divided over Trump’s tariffs

President Donald Trump‘s tariffs are creating a divide in the medical community.

Medical devices and protective gear made in China, Mexico and Canada were exempt from duties during the first Trump administration, but so far have not gotten a reprieve from his newest round of levies. While device makers who would take a big hit from the tariffs are pushing for a new carve out, the makers of personal protective equipment — who stand to benefit from the barriers — are not.  

The duties could also increase costs for hospitals — and therefore patients — and reduce access to critical equipment and care.

“MedTech supply chain leaders are already reporting supply chain concerns, and we cannot afford to drive up the cost of health care for patients, or on the health care system,” said Scott Whitaker, CEO of AdvaMed, the trade group which represents medical technology and device makers. “The reality is, any increased costs will be largely borne by taxpayer-funded health programs like Medicare, Medicaid and the VA.”

Hospital trade groups have also been sounding the alarm, saying that tariffs could reduce the quality of care.

“The AHA has and will continue to share with the Administration, disruptions in the availability of these critical devices — many of which are sourced internationally — have the potential to disrupt patient care,” said Rick Pollack, the CEO of the American Hospital Association. “AHA continues to push for a tariff exemption for medical devices to ensure that hospitals and health systems can continue to serve their patients and communities.”

Trump in February imposed 25% tariffs on imports from Canada and Mexico, but later delayed duties on many items that fall under the U.S.-Mexico-Canada Agreement.

There has been no reprieve for goods from China. Trump’s new levies on imports from the country during his second term have brought the tariff rate up to 145%.

Dozens of other countries face 10% tariffs after Trump delayed proposed steeper rates.

Many businesses can simply raise their prices to help offset increased costs from tariffs. That doesn’t apply to a range of hospitals and other organizations buying medical equipment.

Many of those groups will have trouble passing on higher costs under current insurance coverage contracts, which they say have locked in prices for the year.

“With the level of tariffs that we’re looking at in China, businesses are going to be completely upside down on these products … they can’t pass those costs on to the consumer.,” explained Casey Hite, CEO of Aeroflow Health, a firm which provides insurance-covered medical devices ranging from breast pumps for nursing mothers to CPAP machines for sleep apnea patients.  

Hite spent last week lobbying members of Congress on Capitol Hill for an overall MedTech tariff exemption — or at the very least more time to adjust.

“I think what we would like to see, more than anything, is a runway or some predictability,” Hite said, adding “let’s do this over the next 12 months, next two years, so that U.S. organizations can prepare.”

On the opposite end of the tariff divide, U.S. companies that produce personal protective equipment have applauded the Trump administration’s latest levies on China.

“I don’t know if it’s going to help the economy overall, but I do know that in our case, successive administrations — both Republican and Democratic — have recognized that these products are not competing on a level playing field,” said Eric Axel, CEO of the American Medical Manufacturers Association, the trade group which represents PPE Makers.

Analysts at Boston Consulting Group estimate roughly half of PPE used in the U.S. is produced in China, with roughly 10%-15% in Canada and Mexico.

The latest tariffs will add to duties imposed on PPE by the Biden administration last fall, which included 100% levies on syringes and needles imported from China. Those items will now face a total 245% tariff.

Altor Safety, which manufactures masks, N95 respirators and gloves in the U.S., has welcomed the tariffs on China. The PPE maker contracts with the U.S. government and companies like FedEx, but has not been able to gain much market share with health systems because Chinese manufacturers subsidized by Beijing undercut U.S. manufacturers on price.

Altor president Thomas Allen said the new tariffs could help the company win new contracts, adding that as Altor increases capacity, “we can actually lower our prices.”

Trump has said he has imposed tariffs in large part to encourage manufacturing in the U.S. In the case of PPE, that may not happen.

But near term, consulting firms say multinational producers are looking to shift manufacturing away from China to other countries with lower tariffs rather than bring it back to the U.S.

“Managing that and the complexity there becomes super hard,” explained Vikram Aggarwal, a BCG managing director and partner.

For American-based medical device and protective gear manufacturers, one strategy now is to shift international production to Mexico and Canada, where they can potentially secure exemptions for products made under USMCA.

Many of the major medical technology and device makers produce many of their goods in the U.S., but do have multiple points for manufacturing internationally. Analysts at Canaccord Genuity note Zimmer Biomet and Stryker, two of the largest makers of knee replacements, have dozens of facilities across North America, Europe and Asia that help them navigate tariffs, but will still face a financial impact.

Johnson & Johnson calculates that its MedTech division, which produces orthopedic and cardiac implants, could face a $400 million dollar tariff headwind this year, due in large part to the magnitude of duties on Chinese imports, as well as levies on non-USMCA compliant imports from Canada and Mexico.

It was one of the first MedTech firms to report first-quarter results and give a glimpse into the effects of tarrifs. CFO Joseph Wolk told analysts on the company’s earnings call that existing contracts with hospitals make it hard to raise prices in the near term.

Longer term, J&J CEO Joaquin Duato said the disruptive nature of tariffs does not create the right incentive to boost manufacturing in the U.S.

“If what you want is to build manufacturing capacity in the U.S., both in MedTech and in pharmaceuticals, the most effective answer is not tariffs but tax policy,” Duato said, noting the company is already investing $55 billion over four years to produce its advanced medications in America.

“Tax policy is a very effective tool to be able to build manufacturing capacity here in the U.S., both for MedTech and pharmaceuticals,” he added.