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China tariff would impact few medical devices manufacturers

Some medical device companies like Medtronic PLC and Zimmer Biomet Holdings Inc. could be affected if the Trump administration follows through on a 25% tariff on goods made in China and shipped to the U.S.

But most major companies in the industry believe they will not be affected because they do not manufacture products in China, or if they do, they do not export them to the U.S., companies and analysts said.

Most of 20 companies surveyed by BMO Capital Markets are "insulated for any trade war, as most of what is sold in China is manufactured in China, or vice versa," an April 10 note said.

"Only Medtronic, Zimmer Biomet, and Insulet Corp. have significant manufacturing presence in China for U.S. imports," wrote BMO medical technology analyst Joanne Wuensch.

Cowen Equity Research analyst Joshua Jennings wrote in an April 11 note that the impact of a tariff on seven large multinational companies he surveyed should be "modest."

The Trump administration on April 5 included 32 categories of medical devices, including catheters, defibrillators, hearing aids, pacemakers and artificial teeth, on a proposed list of $100 billion in goods facing the tariff.

The list came after China threatened to impose its own 15% to 25% tariffs in response to a proposed list of $50 billion in tariffs the U.S. released April 3.

The Advanced Medical Technology Association has said it plans to urge the removal of medical devices from the potential tariff, in part because the products are not involved in U.S. complaints about China's practices.

What impact a tariff would have on those companies that do make products in China is unclear.

Zimmer Biomet manufactures products in China that are shipped to the U.S., company spokeswoman Monica Kendrick confirmed by email.

She said the company is still examining any potential impact and expects to provide investors with an estimate on an April 26 earnings call.

Insulet told BMO all of its products are made in China but said it is planning to move more operations to the U.S. in 2019. The company broke ground on its first U.S. plant in September 2017 in Acton, Mass.

The company did not provide further details to BMO about a potential impact.

A Medtronics spokesman declined to comment. But according to the Cowen note, the company "does not anticipate a material impact."

In addition, BMO's Wuensch wrote, the U.S. Trade Representative has not said when a tariff would take effect, and it is taking comments until May 22 on whether products should be included.

In the interim, the U.S. and China could negotiate a new trade agreement. If a tariff on China-made products is imposed, it would not have an impact until the third quarter of 2018, she wrote.

A number of companies, such as Abbott Laboratories, Stryker Corp. and Wright Medical Group N.V., told the analysts they do not have manufacturing plants in China.

Boston Scientific also does not manufacture in China but purchases some components from the country, according to Cowen. Emerging markets make up only 10% to 11% of the company’s total revenue, and Jennings estimated sales to China makes up less than 5% of its total revenue.

Some others, such as Baxter International Inc., Becton Dickinson and Co. and ResMed Inc., said nearly all of the goods they manufacture in China are sold in that country.