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Will USTR's 25% Tariff Exemption Spell Relief for MedTech?

Urmimala Biswas

The medical device sector has borne the brunt of the trade war between the United States and China time and again. The latest update about U.S. exemptions of some medical devices from 25% tariff along with the nations’ efforts to temporarily resume trade negotiations comes as a breather for investors. However, chances of the dispute ending in the near term are slim.

Let us delve deeper:

Trade Uncertainty in MedTech: The Backdrop

A couple of months back, U.S. Trade Representative (USTR) declared its aim to increase the rate of additional import duty on another $200 billion worth of Chinese products from 10% to 25%. It also stated that the United States will maintain the already-imposed 25% tariffs on $250 billion of Chinese goods.“In light of the lack of progress in discussions with China, the President has directed the Trade Representative to increase the rate of additional duty to 25 percent”, a Federal Register report had stated.

This pushed MedTech makers into grave trouble. Going by a MedTech Dive article, a subsection of medical devices including imaging equipment, diagnostic reagents, surgical gloves and contact lenses falls under this increased tariff category.

Beijing immediately announced $60 billion reciprocal tariff on imports from the United States and was supposedly preparing for a severe counter-attack.

What’s in Store for MedTech?

In the wake of the U.S. tariff and counter Chinese retaliation, the MedTech fraternity apprehends further bottom line pressure (especially on the companies with production in China), if the latest proposal is passed. Medtronic, Stryker SYK, Boston Scientific BSX are a few companies, which are already suffering as a result of the trade spat. The latest USTR proposal, if it gets approved, may result in further loss of productivity, leading to layoffs and decline in research and development within the MedTech space.

The industry representatives are already lobbying against this, warning further imbalance in international trade. AdvaMed, which was actively lobbying in favor of exemptions from tariffs, in a recent testimony to the USTR, stated that, “this tit-for-tat retaliation between the U.S. and China undermines President Donald Trump's objectives for a strong domestic medical technology industry” (per a MedTech Dive report).

On Jul 9, the USTR declared that it has decided to exempt a list of medical devices from the 25% tariff umbrella placed on $34 billion of Chinese goods. In July 2018, tariffs were imposed on $34 billion of Chinese goods, including a number of medical devices. Per CNN Business report, pacemakers, X-ray generators, UV apparatus,anesthetic instruments and optical instruments were the medical products in this category.

Per the latest Federal Register report, as part of its periodic exclusion request acceptance, the Trade Representative recently decided to exempt some of the products from the 25% tariff including veterinary ultrasound device, microwave ablation antennas, suction coagulators, dental X-ray alignment and positioning apparatus and multi-leaf collimators of radiotherapy systems.

2 MedTech Stocks Likely to Benefit

Medtronic plc MDT is likely to benefit from the latest exemption. Per several reports, there were 12 exclusion requests granted to Medtronic by the USDR. This includes a component in a device used to treat liver tumors. A Reuters report claims that Medtronic had stated that R&D-heavy components, at most risk for intellectual property theft, were not produced in China. Since the news surfaced, the stock has gained 2.9%.The company currently carries a Zacks Rank #3 (Hold).

Medtronic PLC Price

Medtronic PLC Price

Medtronic PLC price | Medtronic PLC Quote

Varian Medical Systems, Inc. VAR too is expected to benefit from the latest decision. The same report claims that some of Varian’s radiotherapy equipment was exempted. The company received this exemption due to the lack of better alternatives of the equipment. This Zacks Rank #3 stock has rallied 16% over the past year.

Varian Medical Systems, Inc. Price

Varian Medical Systems, Inc. Price

Varian Medical Systems, Inc. price | Varian Medical Systems, Inc. Quote

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