Report: Looming NAFTA reforms, new border taxes threaten Mexican & US med device biz

The Trump administration’s threats to alter trade deals and add taxes to imports could affect a booming medical device business in Mexico, which imports a significant amount of products to the US, according to a New York Times report.

The US imports approximately 30% of its medical devices and supplies and new taxes on imports or alterations to trade deals, such as the North American Free Trade Agreement, could significantly increase the cost of those products for med device companies and drive up healthcare costs in the US, according to the report.

While the new taxes and trade deal alterations are intended to increase manufacturing jobs in the US, jobs in medical device manufacturing can be difficult to move. Facilities producing medical devices face strict regulations and require lengthy approvals from the FDA and other regulatory bodies, making those jobs more difficult to move after they’ve been established, according to the report.

Mexico is the top medical device importer to the US, just ahead of Ireland, Germany and China, and the import business is booming – more than tripling between 2001 and 2016 to $43.9 billion, according to the paper.

Many American medical device makers have invested in Mexican facilities, including Medtronic (NYSE:MDT), CareFusion, DJO Global, Integer Holdings (NYSE:GB) (formerly Greatbatch) and Hill-Rom Holdings (NYSE:HRC).  And those companies plan years in advance to build new plants or expand existing facilities in the area, Baja California Medical Device Cluster VP Miguel Diaz told the paper.

“For that reason now, you don’t know if you start some operation tomorrow how it’s going to be affected,” Diaz said. And if a border tax is incurred, Diaz said it will be the final customer who pays for it.

A border tax would also affect American suppliers, according to the report, as Mexico’s medical device industry buys a significant percentage of its raw materials and capital machinery from American suppliers.

Mexico would likely respond to a border tax by imposing tariffs on raw materials from American suppliers, which could cause production costs to spike and cause companies with Mexican production lines to shift to suppliers in other areas, such as China. And shifting suppliers can mean delays on the regulatory end, as the FDA and other regulatory bodies require certification and inspection which can take months to complete.

“People need to understand this relationship we have goes both ways,” Tijuana Economic Development Corp board prez David Mayagoitia told the Times.

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