U.S. medical device companies feel pain of Trump's tariffs

Peter Larson, the president and CEO of a small medical device company in Newark, Ohio, has paid over $250,000 in new tariffs as a result of President Donald Trump’s trade war with China. And his appeals for relief largely haven’t worked.

He asked the U.S. Trade Representative for an exemption from the duties and waited a year before receiving a letter in September saying his request had been granted.

“I whooped for joy when I saw that,” Larson said.

But his elation was short-lived. After checking the actual tariff code for the exemption that USTR published in the Federal Register, it became clear that it only covered “about 3 percent of what we've been paying taxes on,” Larson said. “And so instead of getting $250,000 back, I was going to get — the hell — $8,000 back. It’s nuts.”

Not long after Trump hit an initial $34 billion worth of Chinese goods with 25 percent tariffs, USTR opened the process for companies to apply for an exclusion from tariffs on any products not readily available in the United States. But critics like Larson complain USTR’s process is difficult to navigate and leads to many rejections.

The medical device industry has been left eating the costs — or passing them along to customers. Altogether, Trump has imposed duties on about $2 billion worth of medical devices and parts made in China, hitting big ticket items like MRIs, electrocardiographs and x-ray equipment as well as diagnostic monitors, laboratory ware, contact lenses, gloves and cotton surgical towels.

For its part, China has slapped retaliatory duties on almost $5 billion worth of U.S. medtech exports, compounding the problems that U.S. companies already face in trying to make sales in the world’s second largest economy.

Earlier this month, Trump announced the United States and China were close to completing a “phase one” trade agreement covering agriculture, currency, financial services and intellectual property. However, until a final more comprehensive deal is reached, tariffs that Trump has already imposed on over $350 billion worth of Chinese goods will remain in place.

Once those duties were imposed, the only avenue for companies to get off the list was to file an exclusion application. That has provided some relief, but not enough to satisfy Larson, a Vietnam war veteran, who started Klarity Medical Products in 1989 in his garage. It has grown into a company with 21 employees and about $5 million in annual revenue. They sell sophisticated head and neck masks and other devices used to hold patients in place for procedures like radiation therapy.

About 20 years ago, Larson hooked up with a Chinese partner and moved his production there. They also divvied up the world market, with Klarity selling to the United States, Canada, Mexico, Europe and South America and his Chinese partner to Asia.

Since there are no domestic manufacturers that can make the thermoplastic masks and devices, Klarity has been forced to absorb the cost of Trump’s tariffs and to put off plans to hire additional workers, Larson said.

The company’s Chinese partner is also facing higher costs because of retaliatory duties China has imposed on plastic material it imports from South Carolina, he added.

The U.S. imported about $5 billion worth of medical equipment from China before the trade war began. Trump’s tariffs now cover about 20 percent of those imports, but that is less than were initially targeted because the Advance Medical Technology Association, also known as AdvaMed, successfully lobbied to get many items removed before tariffs were imposed.

The preliminary deal announced earlier this month is “good news both for patients and American jobs, and we hope it will lead to a more substantial agreement in the future,” AdvaMed President and CEO Scott Whitaker said in a statement.

Not every medical device company that received an exclusion shares Larson’s frustration.

Last month, USTR also granted requests from Varex Imaging Corp. based in Salt Lake City, Utah, for several Chinese-made parts used in the company’s X-ray tube, digital detector and heat exchanger products to be excluded from the 25 percent tariff.

“We are appreciative of the USTR and U.S. government in granting this tariff exclusion,” Sunny Sanyal, president and CEO of Varex said through a spokesperson. “We believe the amount of relief is acceptable relative to the amount of incremental tariffs paid.”

But another company based in Redwood City, Ca. that makes “wearable” patient monitoring equipment found itself caught with a $100,000 tariff bill after it failed to apply for an exclusion before USTR’s process closed.

“I honestly thought there was going to be a carve-out for small businesses, or a carve-out for someone who had a product that was really American” even if it includes parts made in China, said Waqaas Al-Siddiq, founder and CEO of Biotricity, in an interview.

USTR published its plans to conduct an exclusion process in the Federal Register. But it did nothing to directly inform business owners who aren’t in the habit of checking that publication, Al-Siddiq said. USTR's exclusion request website was so confusing and difficult that Biotricity never finished its application, he added.

Once Trump threatened to raise the tariff on medical device part from 25 percent to 30 percent, Al-Siddiq began looking into the exclusion process again. After struggling again with USTR’s website, he finally stumbled upon a phone number where he could call with questions, only to find out that the application period had closed.

The phase one deal announced this month means the tariff Biotricity now pays won't rise to 30 percent, assuming it is successfully concluded in coming weeks.

But the tariff will stay at 25 percent until a final deal is reached. The extra cost won’t bankrupt the company, but "it certainly doesn’t help in our mission, which is to reduce health care costs,” Al-Siddiq said.