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Medical technology group asks Trump administration to abandon Mexico tariffs

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President Donald Trump said a 5% tariff on all imported goods from Mexico would take effect June 10 if a deal on the flow of migrants into the U.S. is not reached.

Source: The Associated Press

As the U.S. inches closer to imposing a 5% tariff on all imports from Mexico, a top medical technology trade association is urging the Trump administration to continue negotiations to avoid straining the countries' heavily integrated medical device supply chain.

President Donald Trump said in a May 30 tweet that a 5% tariff would be imposed June 10 if the two countries did not agree on a plan to stop the flow of migrants coming from Central America and entering the U.S. via Mexico. The tariffs are scheduled to increase by 5% each month if an agreement is not reached, eventually capping at 25% on Oct. 1.

Scott Whitaker, CEO and president of the Advanced Medical Technology Association, or AdvaMed, said in a June 7 letter to U.S. Trade Representative Robert Lighthizer that the organization is in "fervent opposition" to the proposed tariffs, stressing that the U.S. should not rush ahead with its decision.

Whitaker touted the trade relationship between the U.S. and Mexico, noting that direct imports of medical technology from Mexico into the U.S. totaled over $12.6 billion in 2018.

"Our industry has developed a vibrant two-way trade relationship, with components and products crossing the border multiple times, and the final high-value manufacturing often performed in the U.S. providing American workers with good-paying jobs," Whitaker said.

If the tariffs are imposed, medical products that "save and extend lives" should be exempt, according to Whitaker.

The tariffs have been met with opposition by high-ranking Republican officials in Congress, including Senate Majority Leader Mitch McConnell, R-Ky. Trump nevertheless reaffirmed his position to reporters June 6 after the U.S and Mexico failed to reach a deal. Trump, however, seemed optimistic in a tweet issued late on June 7 that the two countries would agree on a plan.

'Manageable' risk for medical device industry

Fitch Solutions Macro Research, a unit of the Fitch Group, said in a June 3 note that the tariffs pose "manageable risks" to medical device imports. The note added that the imposition of tariffs is "uncertain ... although we are treating this as a serious threat."

Mexico is the leading provider of medical devices for the U.S., with about $8.6 billion of total imports in 2018, according to Fitch. The U.S. is also an important partner for Mexico, taking in over 90% of the country's medical device exports. Fitch said the trade relationship between the U.S. and Mexico has allowed the country to grow its position in the medical device industry.

"Since the [North American Free Trade Agreement] was signed, U.S. investment in Mexico has increased considerably, resulting in a heavily integrated medical device supply chain between the two countries," Fitch said. "Mexico is now the eighth leading medical device exporter in the world, and the leading medical device importer and exporter in Latin America."

Imported products include orthopedics and prosthetics, syringes, and needles and catheters, according to the note.

"Moving medical device manufacturing back to the U.S. is complicated due to extensive regulatory requirements, and expensive as the U.S. relies on low cost manufacturing infrastructure in Mexico," Fitch said.

Cowen analysts Joshua Jennings and Harris Iqbal said in a May 31 note that Baxter International Inc. manufactures in Mexico and "based on current import levels, the proposed 5% tariff would result in an impact of less than $10(Million)." Stryker Corp. manufactures products in Mexico, but the company's exposure is minimal, according to Cowen.