The US Trade Representative (“USTR”) has begun to impose tariffs on a wide variety of Chinese imports, and it intends to expand the list of affected products in the coming weeks. Healthcare products figure prominently in the tariff lists, with broad impacts for supply chains for businesses across the sector. As there is no evident path toward near-term resolution of the growing U.S./China trade dispute, businesses will want to consider effects of the tariffs on their supply chains as well as the impact on valuations in M&A contexts.

The so-called “Section 301” tariffs stem from USTR’s investigation under Section 301 of the Trade Act of 1974 into China’s technology transfer policies. As part of the investigation, thousands of comments have been filed in response to the final and proposed lists of Chinese-origin articles that would be subject to duties. On July 6, 2018, USTR imposed 25% tariffs on the first list of products totaling $34 billion in imports. The USTR has now prepared a second tranche of Chinese products subject to 25% tariffs, which will go into effect on August 23, 2018, and cover a further $16 billion in imports. As a retaliation for China’s retaliation for its other tariffs, USTR has proposed for similar tariffs (likely between 10 – 25%), which would cover an additional $200 billion, with a likely effective date in the fourth quarter this year.

In the healthcare sector, numerous critical and widely-used products appear on all three lists, including pharmaceutical products, organic chemicals that may be active ingredients, pacemakers, rubber medical gloves, MRI and CT machines, and sterilizers. With the steep 25% additional duties in place for “list 1” and set for imposition by August 23, 2018 for “list 2,” companies who import or purchase these pharmaceutical, medical device, and medical supply products should monitor the developments and consider seeking exclusions from these additional duties.

USTR issued instructions on the process for requesting exclusions for the first list and additional instructions will follow. In the medical field, such requests may be particularly effective as the duties could dramatically impact purchases by hospitals, healthcare systems, or physician groups. Companies should consider filing exclusion requests as soon as such relief is available.

Sample healthcare products from the three USTR lists that will be affected by the tariffs include:

  • Medical products like:
    • Glass serum bottles, vials and other pharmaceutical containers
    • Parts of sterilizers
    • Certain medical gloves

  • Apparatuses like:
    • Glass serum bottles, vials and other pharmaceutical containers
    • Certain medical or surgical cameras
    • Electrocardiographs and printed circuit assemblies
    • Ultrasonic scanning electro-diagnostic apparatus
    • Magnetic resonance imaging electro-diagnostic apparatus
    • Scintigraphy electro-diagnostic apparatus
    • Electro-diagnostic patient monitoring systems
    • Ultraviolet or infrared ray apparatus and certain parts/accessories
    • Computed tomography apparatus based on the use of X-rays
    • Apparatus based on the use of alpha, beta, or gamma radiations, for medical, surgical, dental, or veterinary use

  • Instruments like:
    • For optical use (including certain parts/accessories)
    • For anesthetic (including certain parts/accessories)
    • Electro-surgical instruments and appliances
    • Pacemakers for stimulating heart muscles

We are assisting numerous clients with these efforts to engage in the administrative process by filing comments and seeking exclusions, and we would happy to discuss the options further.

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