The proposal for an additional 25 percent in duties will affect at least $3 billion of medical devices and diagnostics and related components from China annually, the trade group for the medical device industry said. The Advanced Medical Technology Association (AdvaMed) provided the group’s prepared statement to Bloomberg Law ahead of May 17 testimony before the U.S. Trade Representative (USTR) on the proposal, which would affect about 1,300 Chinese goods valued at an estimated $50 billion.
The proposal to levy more tariffs on medicines such as insulin and penicillin from China comes amid a roaring debate over drug pricing, as the White House released a nearly 50-page plan to lower the costs of prescription drugs on May 11.
Meanwhile, those tariffs could increase. President Donald Trump directed USTR Robert E. Lighthizer to determine if an additional $100 billion in tariffs would be appropriate under Section 301 of the Trade Act—the main authority used to impose trade sanctions.
Big Impact on Devices
American device companies import a lot of their parts from China, Ralph Ives, AdvaMed’s executive vice president of global strategy and analysis, told Bloomberg Law. Increasing tariffs on parts used to make medical devices will drive up costs as they go through distributors in the manufacturing process, potentially driving up the costs of medical devices overall and making them more expensive than ones made by Chinese companies.
“We’re a competitive industry. We’re competitive with the Chinese,” Ives said in a May 15 interview, adding that AdvaMed has worked with the U.S. government to develop an action plan on trade issues. “We’re not minimizing the impact of China,” he said. “But the action plan is a good basis for making progress with the Chinese rather than be part of this trade dispute.”
Ives is one of more than 120 witnesses who testified before the USTR’s office May 15 to 17 in public hearings on the initial proposal. The public comment docket had more than 2,800 comments as of May 15 (USTR-2018-0005-0001).
The administration’s approach for medical technologies appears to be inconsistent with the administration’s objective to make the American industry more competitive with foreign goods, Ives said.
If a device manufacturer decides to work with another supplier to head off the increased costs on Chinese goods that could trigger delays in the Food and Drug Administration’s (FDA) ability to approve these products. Changes in distributors for device parts could trigger a requirement to submit a new premarket approval site change supplement to demonstrate the new supplier has not diminished the quality of the product. “It’s not just an easy step of going, ‘Oh hey, there’s Malaysia. They have kind of the same thing, we’ll just throw that into our medical device,’” Ives said.
Drug Groups Are not Testifying
While the device industry relies heavily on imported parts, the pharmaceutical industry actually makes about 75 percent of the drugs sold in the U.S. domestically, according to a 2016 report from the International Trade Administration, part of the Department of Commerce. Nevertheless, the sheer size of the U.S. market makes that remaining 25 percent the world’s largest importer of pharmaceuticals with a value of more than $86 billion.
Neither the Pharmaceutical Research and Manufacturers of America (PhRMA), which represents brand-name drug companies, nor the Association for Accessible Medicines (AAM), which represents the generic drug industry, plan to testify in person.
But the generics industry said imposing tariffs on generic drugs, biosimilars, or their ingredients “would have a perverse effect on health care spending in the U.S.” By driving up the costs of manufacturing generic drugs and biosimilars, these tariffs would lead to higher prescription drug prices and decreased access for patients, Jeffrey K. Francer, AAM’s senior vice president and general counsel, wrote in a May 11 letter to the trade representative.
The proposed tariffs on drugs and devices are inconsistent with the Trump administration and the Department of Health and Human Services’ blueprint aimed at lowering prescription drug prices, Bloomberg Intelligence senior health care analyst Brian Rye told Bloomberg Law in a May 15 email. At the same time, Rye acknowledged that the administration has other, unrelated objectives in mind with these tariffs, Rye said.
Drug Shortages
Some new products may not be cost-effective enough to manufacture because of the tariff, Francer added. “Moreover, the time necessary to secure FDA approval of potential alternative suppliers of pharmaceutical ingredients would likely prolong either higher generic drug prices or increased risk of drug shortages in the United States.”
A spokeswoman for PhRMA told Bloomberg Law the trade group’s position has not changed since it first submitted comments last fall. Those comments focused on transparent mechanisms to resolve patent disputes in China, continuing reforms in China for obtaining biopharmaceutical patents, and to protect data submitted to “secure approval of products containing a new chemical ingredient.”
“We are continuing to monitor new developments,” the PhRMA spokeswoman told Bloomberg Law.
Selected information in the "Pharmaceutical Science Update" is compiled from summaries and articles from Bloomberg BNA.