HONG KONG – The Trump administration has proposed placing a 25 percent tariff on more than 1,300 imported goods from China, such as biotech materials and medical devices, a move some say could eventually hurt U.S. drugmakers.
The decision stems from President Donald Trump's investigation into how China's has been obtaining American technology and intellectual property. It is likely to set a spark to already tense trade relations between the two super powers. (See BioWorld, April 5, 2018.)
Earlier this year, the U.S. had placed tariffs on imported solar panels, steel and aluminium imports. In response, China implemented tariffs on 128 U.S. products.
On April 3, a list of Chinese imports that the Trump administration aims to target with the 25 percent tariff was announced as part of a crackdown on what he deems as unfair trade practices. Out of the $50 billion worth of Chinese imports that will be levied, pharmaceutical and medical device exports are estimated to be around $5 billion.
China responded with new tariffs on an additional 106 U.S. products, ranging from cars to chemicals. The move came less than 24 hours after the White House unveiled its proposed list.
The effective start date for the new charges on both sides has not been announced yet. But China's Ministry of Commerce said the tariffs are designed to target up to $50 billion of U.S. products each year.
The tit-for-tat has markets on edge in anticipation of its effects.
Sakshi Shikha, a pharmaceuticals and health care analyst from BMI Research, said the implementation of hefty import tariffs on medicines and targeted Chinese products marks a fundamental change in U.S. trade policy and will severely impact American generic drugmakers that rely heavily on raw drug ingredients from China.
"Tariffs on raw drug ingredients will negatively affect America's generic drugmakers such as Mylan [NV], which manufactures drugs in mass quantity and imports such chemicals from China," Shikha told BioWorld. "Levying additional tariffs on such imports, as the [U.S. Trade Representative] proposes, would inevitably increase the costs of final products."
The FDA estimates that 80 percent of the ingredients needed to formulate drugs consumed by patients in the U.S. are imported from China as well as India.
According to customs data calculated by the China Chamber of Commerce for Import & Export of Medicines & Health Products, China exported $291 billion worth of active pharmaceutical ingredients (API) in 2017, of which 14.5 percent were exported to North America.
However, Credit Suisse's Director of China Healthcare Research, Serena Shao, said she believes it shouldn't make too much of an impact on the sales and revenues of U.S. pharma companies.
"The China market only accounts for 1 to 2 percent of overall global sales for some pharma companies so it should be limited in its impact on that side of things," Shao told BioWorld.
Shikha also said she believes that Chinese drugmakers will see minimal impact from the trade tariffs given their focus on the domestic medicine market.
"China's major suppliers of raw drug ingredients include Zhejiang Hisun Pharmaceutical Co. Ltd., CSPC Pharmaceutical Group and Zhejiang Hisoar Pharmaceutical Co. Ltd.," said Shikha. "Since most of these are focused on the domestic market and U.S. sales account for a small percentage of their sales and profits, Chinese API manufacturers will see a little impact from the trade tariffs."
Shikha added that the announcement of a series of favorable policies to boost the local generic drug industry will also bode well for Chinese drugmakers.
Shao, on the other hand, is concerned that Chinese patients might suffer if the flow of innovative and quality products slows down.
The increased tension of the U.S.- China trade war came just weeks after Chinese Premier Li Keqiang said the government is aiming to eliminate all tariffs on cancer drugs.
"'For hot-selling consumer products in the market, including medicines, especially anticancer drugs urgently needed by the people, we will lower import tariffs to a relatively large extent, and work hard to reach zero tariff for anticancer medicines," said Li at a media briefing last month after the closing of the 13th National People's Congress.
BMI estimates that zero-tariff on oncology therapeutics will reduce the cost for cancer patients by around ¥1.8 billion (US$280 million).
China is the second-largest market globally for oncology medicine. Despite the fact that cancer drugs come with expensive price tags in China, the majority of cancer drug in the country are still from overseas sources.
The reduction in import tariffs for those drugs is expected to significantly increase revenue generation opportunities.
Though the final decision will likely culminate at a hearing on the tariffs in Washington on May 15, China-U.S. bilateral talks are currently ongoing. A public comment period will also last until May 11, so U.S. companies and consumers will have the opportunity to lobby to have some products taken off the list or have others added.