Tariffs are hitting medical supplies and costs 'will be passed on to the consumer’

Adriana Belmonte
Associate Editor

U.S.-China trade tensions continue to escalate as new tariffs took effect on September 1.

Americans are already feeling the effects of these tit-for-tat taxes, particularly farmers who rely on agricultural exports to China. But it’s not just agricultural products that have been getting hit — medical supplies are also feeling pressure.

Michael Einhorn, president of Dealmed, a medical supply distributor, predicts that the trade war will drive up the cost of health care even more. This is because many products rely on China for manufacturing.

“People will see an increase,” Einhorn said on Yahoo Finance’s On the Move. “The margins are very thin on health care supplies. They’re very scrutinized … and ultimately, will be passed on to the consumer.”

Presidents Trump and Xi have not been able to come to a trade agreement. (Photo: REUTERS/Kevin Lamarque)

‘Think of products like gauze’

Consumers are already paying for this trade war — projections have the cost at between $767 to $2,294 depending on the size of the household. A recent note from J.P. Morgan puts that number at $1,000 per household. And it’s not just consumer items being affected.

“Think of products like gauze that are made in Band-Aids,” Einhorn said. “Think of other products like medical gloves.”

He continued: “These products are used on an everyday basis not only on the professional side such as physician offices, surgery centers, and hospitals, but also on the consumer side — products you’ll buy in a pharmacy. And those products will be somewhat affected somewhere between 10% and 25%.”

An ICU nurse puts on gloves before entering a patient's room. (Photo: AP Photo/Rob Carr)

Trump’s new tariffs roll out in two tranches. First, on September 1, the $300 billion worth of Chinese imports tariffed at a 10% rate are now being taxed at 15%. Second, starting October 1, the existing 25% tariff on $250 billion worth of Chinese goods will become a 30% tariff.

While it’s fairly certain that medical supplies will be affected — since many are imported from China — it’s unclear how much.

“When you throw tariffs into the mix, we’re talking about potential shortages, we’re talking about potential price increases — not only to hospitals and big health care systems, but also to the consumer at home who may need some products at the pharmacy or ... patient care at home,” Einhorn said.

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‘Medical products should not be tariffed at all’

The current U.S. health care system already sees exorbitant costs. U.S. health care spending grew 3.9% in 2017, reaching $3.5 trillion or $10,739 per person, according to the Centers for Medicaid and Medicare Services (CMS). That accounts for about 17.9% of the nation’s GDP.

“The reality is: costs will go up across the board,” Einhorn said. “Not only because of the tariffs, but because what’s happening behind the scenes, and [that is] the disruption of the supply chain.”

Tariffs on medical supplies could drive up health care costs. (Graphic: David Foster/Yahoo Finance)

Einhorn’s solution? Tariff exemptions or waivers.

“A waiver would make a big difference,” he said. “There have been requests put in for about 40 different products to be waived that hasn’t happened yet in the first round. Some of the subsequent rounds there have been waivers. But as of right now, there haven’t been any waivers set to go into effect in September.”

The Office of the U.S. Trade Representative (USTR) released a list of 110 exempted products from tariffs. Only nine of those are types of medical devices.

“Ultimately, medical products should not be tariffed at all,” Einhorn said. “That’s my opinion. I think there are so many issues outside of the trade war and it’s so insecure in terms of the supply chain. I think messing around with it in any form is dangerous with pandemics such as Ebola, which are resurfacing in Africa. You can’t risk running out of face masks or gloves or exam gowns. Those things ... should be waived entirely.”

Adriana is an associate editor for Yahoo Finance. Follow her on Twitter @adrianambells.

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