What tariffs could mean for health care

By Michael Giusti

Although a medical procedure itself isn’t something that could be imported, much of what happens in the clinic could nonetheless be affected by trade policy and tariffs.

From medical equipment to personal protective equipment, and even pharmaceuticals, much of the health care supply chain has its origins outside the United States. That means that if those costs were to go up, that increase could ripple throughout the entire health-care ecosystem.

Pharmaceuticals have long enjoyed large exemptions from tariffs ever since the 1994 World Trade Organization Pharma Agreement was widely adopted. But that doesn’t mean they will necessarily remain immune from international trade politics.

For now, President Donald Trump left prescription drugs out of his April 2 “Liberation Day” tariff announcements, but he has repeatedly said since then that he has plans to implement tariffs on pharmaceuticals soon. For example, during a fundraising dinner, he said an announcement was coming “very shortly.”

If finished pharmaceuticals were to be taxed at the border, many in the industry worry that generics might be the first to suffer. That is because generics are largely produced in places such as India, and most operate on extremely tight margins. Industry insiders warn that cutting into that already stretched cost structure could drive some of the producers out of the market, or out of business altogether, decreasing options, endangering supply and potentially increasing prices across the board.

Even if tariffs on finished drugs end up being exempt, the raw materials used for domestically produced prescriptions could take a hit. Those raw materials, known as active pharmaceutical ingredients, largely come from China, meaning that the triple-digit tax placed on them could trickle even into the domestic drug supply chain.

Drugs aren’t the only area in which tariffs stand to raise medical costs. Medical devices also could take a huge bump in costs. Many of the medical devices used in the United States are imported, largely from China, Mexico and India. And about two-thirds of those imported medical devices are expected to face pricing pressure through tariffs

And even domestically produced medical devices could face cost pressures. That is because, like domestically produced pharmaceuticals which could face higher raw ingredient costs from tariffs, even domestically produced medical devices could stand to face higher materials costs in the form of plastics or steel, impacting costs for the devices they make in the United States.

The areas most likely to see an impact among medical equipment include medical imaging devices, diagnostic equipment, surgical instruments and implantable electronic medical devices. Personal protective equipment and other disposables could also face steep pricing pressure, including things like gloves, gowns, syringes and sterile drapes.

Although higher costs could increase many of the underlying costs of the medical industry, tariff advocates argue that Trump’s trade policy is addressing a pressing national security issue and an imbalanced system of trade that needs to be brought back into check. The argument is that relying on imports for critical medical components creates not only an economic problem, but a national security problem, as was seen with the lack of availability of personal protective equipment in the early days of the COVID-19 pandemic.

To that end, some of the few remaining domestic suppliers of gloves and masks are cheering the tariffs. But it is unclear if tariffs alone are enough to prop up the domestic supply, because even with 100% tariffs, a Chinese mask selling for a penny is still going to be less expensive than an American made one selling for many times that.

But coupled with domestic purchasing policies, tariff advocates hope that in the long term the taxes might be enough to incentivize more domestic production and more secure supply chains.