American, Chinese Medical Companies, Trade Groups Argue Against Section 301 Tariffs

Chinese drugmakers and device makers, U.S. device makers that import Chinese components, and the distributors who sell supplies to hospitals and government agencies all asked the Section 301 panel to spare the healthcare sector from 25 percent tariffs on Chinese imports. The testimony came on the last of three days of hearings by the Office of the U.S. Trade Representative as the panel works to refine a list of 1,300 tariffs on $50 billion worth of Chinese goods. Witnesses said these Chinese items do not necessarily follow China's industrial policy of forced tech transfer or its efforts to leapfrog into more advanced manufacturing. Linda Rouse O'Neill, vice president of government affairs for the Health Industry Distributors Association, said tariffs aren't just going to be an economic drag on the healthcare system. "It's really going to exacerbate product shortages," she said. "We already don't have enough personal protective equipment."

At the Section 301 public hearing, Wayne Quinn, president of Mindray North America, spoke about products under Harmonized Tariff Schedule subheadings 9018.12.00 through 9018.90.80 made by his company in China, which include ultrasound, anesthesia delivery machines and patient-monitoring machines. Mindray is a subsidiary of a Chinese manufacturer, and all its products are made in China, but it employs more than 500 people in the U.S. "Unlike emerging biotechnology or robotic surgery equipment, these products are mature, enhanced and perfected through decades of clinical application," Quinn said, and therefore not part of China's ambitions in the Made in China 2025 plan.

Building these products in China "contributes to delivering healthcare within the financial reach of today’s challenging hospital marketplace," Quinn said. In an interview after the hearing, Quinn said he hopes the panel's takeaway from his testimony is that the U.S. healthcare system is facing financial stresses. "With an aging population and declining [insurance] reimbursements, it's only going to get worse," he said.

Ralph Ives, executive vice president of global strategy for the Advanced Medical Technology Association (AdvaMed), said overall, AdvaMed's members have only a slight trade deficit with China for their products, and, regarding the items on the tariff list, U.S. manufacturers of medical technology have a surplus. Overall, U.S. manufacturers of medical technology sell $42 billion annually, AdvaMed says.

Ives said in an interview that about 60 percent of items on the tariffs list are used in the products AdvaMed's manufacturers make. He said if the cost to manufacturers goes up, they will generally not be able to pass that along to buyers, because the cost of medical devices is bundled into an insurer's reimbursement rate for a given procedure or surgery, and hospitals are not likely to shift more of that money away from their staffing costs to the device sellers.

Ives characterized the tariffs list as a "broad-based, punch-you-in-the-face-type approach," and said that makes no sense, because AdvaMed is making progress with Chinese officials on the problems it has in the China market. For instance, he said, the speed with which devices are approved for sale in China is much improved. China has agreed to allow new drugs in based on clinical trials done outside China, and is moving toward harmonizing its regulations on clinical trials within China with international standards. Ives, who has worked on Chinese issues for AdvaMed since 2004, said, "We're making progress. Why stop progress?"

Chinese officials from the Patent Protection Association of China responded to questions from the panel about joint venture rules, one of the practices the Section 301 action is supposed to bring pressure on China to end. Jie Lian said the country is always refining its requirements in that regard, and he compared China's rules to the U.S. investment restrictions through the Committee on Foreign Investment in the United States. "When you talk about restrictions on investments," all countries have some, he said. More broadly, Lian questioned why the U.S. trade representative would turn to tariffs. "When high-level talks are going on, why is the imposition of tariffs still the best option?"

US-China Business Council President John Frisbie is also arguing tariffs aren't the right option, and hailed this week's talks with the vice premier of China. "While we can’t expect all the issues to be solved this week, we encourage the two governments to agree to some ‘early harvest’ wins to address immediate concerns and dial back on tariffs," he said in a statement released May 17. "There are also structural issues that will take longer to resolve and require the establishment of a regularized dialogue focused on commercially meaningful outcomes that can be measured over time. The combination of short-term successes and putting in place a credible process to address structural issues in the relationship on a timely basis would build much needed confidence and trust in the relationship."