The US-China customs war creates new business opportunities for those interested in doing business in China. In the case of disposable medical equipment, however, the already strong price pressure will increase, posing a challenge for companies already working on low margins, says Pawel Ossowski, Vice-President of the Management Board and Managing Director of Zarys International Group, in an interview with PMR.
Medical equipment market as a key segment
In addition to raw materials and articles used in heavy industry, medical devices are one of the product categories most severely affected by customs duties increases. At the beginning of the year, the medical industry became concerned when President Trump burdened medical equipment with an annual import value of approximately $2.8bn on the original list of products subject to tariff increases (from 10% to 25%). Ultimately, the United States Trade Representative published a list of medical devices worth $836m, including magnetic resonance appliances, ultrasound equipment and medical cameras.
– Over the past few months, the number of items on the list has grown steadily. The Chinese government has responded with its own customs duties on radiology products, medical lamps and disposable surgical gloves. Medical devices are discussed at practically every round of negotiations, and in the absence of any prospect of either side relaxing their customs policies, the potential list of products is being extended – says Pawel Ossowski in an interview with PMR.
Will the customs war create new opportunities?
As Mr Ossowski reminds, the main goal of the American President’s administration was to strengthen the domestic economy and become independent of competitive goods manufactured in China. This assumption is justified in the case of simple, mass-produced products, components and raw materials. In the case of medical equipment, however, the customs war may turn out to be a double-edged sword, and even more so, it may hit American companies. Especially those that have a significant part of the supply chain in China. – It is important to note that in addition to customs duties on finished products, increases have also been introduced on raw materials such as steel and aluminum, widely used in the manufacture of medical equipment – explains the director of Zarys International.
– Faced with a saturated market in developed countries, China and other BRICS countries are the most interesting morsel in terms of potential business development. Stopping the expansion of American companies will open new opportunities for European entities and Chinese companies focused on export – adds Pawel Ossowski.
According to the Vice-President of Zarys, new opportunities are opening up in particular for manufacturers of more advanced equipment, including companies from Poland. These include specialist catheters and equipment for telemedicine. One significant barrier to entry is the relatively complicated and cost-intensive registration processes. – In this case, the cooperation and support of entrepreneurs by state agencies such as the Polish Investment and Trade Agency (PAIiIZ) and diplomatic channels would be very important. This would reflect the case of companies based in Germany and Great Britain, which are supported by economic institutions in their home countries – he emphasizes.
Will the prices of some medical equipment fall?
Paradoxically, an increase in customs duties could result in a fall in prices for certain medical devices. An interesting situation could arise in the case of medical gloves (and diagnostic synthetic gloves in particular). Chinese companies have only recently started to compete with global concerns based in Malaysia and Thailand, expanding dynamically on the American market, mainly in terms of price. – The rapid growth of sales in the US inspired Chinese manufacturers to develop factories and increase the scale of production in the hope of a substantial increase in market share. On the other hand, in the event of a potential increase in customs duty from 10% to 25%, exports of gloves to the US will become completely unprofitable, as margins in this industry are negligible and economies of scale are important – explains the director of Zarys International.
As Mr Ossowski underlines, the absence of Chinese players will result in the return of the lost part of the market (which was relatively small, as Chinese expansion took place during the early stage of growth) to the largest producers based in Malaysia. Chinese factories may want to recycle their production surpluses in Europe (which is the largest glove consumer in the world after the US), and this should lead to lower prices. – Furthermore, it is worthy of note that China produces mostly synthetic rubber gloves (as it has no access to the relevant natural raw materials), i.e. nitrile items, and the ratio of nitrile gloves to natural latex is much higher in Europe than in the United States – he adds.