US-Mexico Medical Device Supply Chain Threatened by New Tariffs

Update (June 10, 2019): The tariffs on Mexico were called off late in the evening of Friday, June 7, to the relief of many industries. Officials reached an agreement to “greatly reduce, or eliminate, Illegal Immigration coming from Mexico and into the United States”. Read more at CTV News. 

Originally posted on June 7, 2019:

Earlier this week, US President Donald Trump proposed a 5 percent tariff on all Mexican imports, sparking concern from businesses on both sides of the border. Among those affected are medical device manufacturers, whose long-time, strong trade relationship with the US threatens to crumble.

On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..

— Donald J. Trump (@realDonaldTrump) May 30, 2019

About $15 billion worth of Mexican imports to the US are optical and medical instruments, according to the Office of the United States Trade Representative, making it the leading supplier to the US. Since the North American Free Trade Agreement was signed in 1994, the US and Mexico have maintained a “pro-business” relationship, with both governments making it easier (and cheaper) for companies to set up shop in its neighbor’s backyard. Lower labor costs and close proximity to North American markets have helped drive over 600 device manufacturers to Mexico over the last few decades.

The 5 percent tariff, set to take effect next week, could rise to 25 percent by October this year. But the tariffs could be lifted if Mexico takes action to control illegal immigration of Mexican citizens into the US, according to the US president.

Analysts are listing off who will likely be affected by the new taxes: Align Technology, Merit Medical Systems, Hill-Rom Holdings, Stryker and maker of the MiniMed insulin pump, Medtronic. This could spell increased costs for raw materials or finished products like needles and syringes, orthopedic devices and imaging equipment.

Device manufacturers are already busy pushing back against a 2.3 percent medical device tax originally enacted in 2010 as part of the Affordable Care Act. In a congressional hearing on Tuesday, Scott Whitaker of the Advanced Medical Technology Association said that this tax increase “will throw an anchor around the neck of an industry that is doing so much to improve patient care and grow the US economy.” The group has not commented on the tariffs imposed on Mexico.

The medical device industry will not be the only ones who will take a blow from the new proposal. Fast-food chain Chipotle said they might have to raise prices or change suppliers for Mexican produce if the tariffs are here to stay. Talks of shutting down the border earlier this year have already spooked the food industry, fuelling the largest single-day price jump for a popular type of avocadoes in over 10 years. Businesses in Texas, Michigan, Ohio and Illinois may lose billions of dollars in imports, say opponents of the tariffs.

After Mexican and White House officials failed to reach a deal this week, it appears the tariffs are still on the table.