Minnesota med-tech industry seeks China tariff relief

WASHINGTON — Minnesota's economically critical medical technology sector is battling to extract itself from a potential tariff and trade war with China that it says could hurt state businesses and cost patients relying on medical devices.

Fearing higher material costs and retaliation, state and national trade groups representing virtually all of Minnesota's major tech players have asked that finished medical technology products and their component parts be removed from a list of Chinese imports targeted for 25 percent protective tariffs by the Trump administration.

With public hearings on the proposed tariffs beginning Tuesday, Shaye Mandle, CEO of Minnesota's Medical Alley Association, has written to U.S. Trade Representative Robert Lighthizer to explain Minnesota's stake in the protectionist proposal.

"Decisions made by the federal government that impact the medical technology industry have a more significant impact in Minnesota than any other state," Mandle wrote. "Minnesota is the home of the most densely concentrated medical technology cluster in the world and ranks second in the U.S. in the number of citizens employed in the medical technology industry."

Gozie Onyema, associate general counsel for trade compliance at Minneapolis-based Smiths Medical is scheduled to speak the trade representative's panel Thursday.

The proposed tariffs are aimed at pressuring China to level a trade playing field that the Trump administration and others argue has fueled trade deficits that hit $375 billion in 2017, threatened U.S. intellectual property and undercut American manufacturers.

Med-tech is hardly alone in asking for tariff relief. Well over 100 speakers representing a variety of industries are expected to plead for removal of items from the tariff list in three days of public hearings.

Best Buy's Chief Merchandising Officer Mike Mohan also is scheduled to testify. He will, according to an already filed notice, talk about the "inefficacy of the proposed tariffs in achieving the objectives," as well as "the impact of the tariffs on Best Buy, the industry, and U.S. consumers." Best Buy is trying to have flat-screen color televisions eliminated from the Chinese tariff list.

How receptive Lighthizer is to amending the tariff list will be determined over the next few days. For the Trump tariff strategy to work, however, it must be broad-based with few exemptions, said Robert E. Scott, senior economist and director of trade and manufacturing policy at the Economic Policy Institute. Scott supports tariffs as a way to change unfair Chinese trade practices and to maximize production and research and development in the United States.

The argument made by Medical Alley and AdvaMed, the country's largest device maker trade group, on behalf of Minnesota companies such as Medtronic, 3M, Smiths Medical, Boston Scientific, Abbott, Ecolab, Colopast and Cantel Medical, centers on the inability of the tariffs to create U.S. jobs in the med-tech space.

The medical technology industry ran a $1.1 billion worldwide trade surplus in 2017, according to prefiled testimony by Ralph Ives, AdvaMed's executive vice president of global strategy and analysis. Trade is roughly balanced in med-tech sales to and purchases from China.

The med-tech products slated for tariffs account for more than half of all med-tech imports from China, according to Ives. Raising their costs by 25 percent puts at risk the trade surplus U.S. med-tech currently holds with the rest of the world.

"We are winning by the administration's own metric — the trade deficit," Ives' testimony states. "We rely on international trade, including imports of components and semifinished products from China to retain our leadership in a highly and increasingly competitive market."

Worldwide, the positive trade balance for U.S. med-tech sales has slipped from $5.5 billion in 2007. But the proposed tariff on Chinese imports and the retaliatory tariffs they would almost surely spark would make things worse, not better, Ives said.

Minnesota's agricultural sector has offered similar objections to the tariffs. Minnesota ag also runs surpluses that depend on global trade, especially with China.

But the medical technology sector can also draw on its mission of saving people or easing their pain.

As Mandle wrote to Lighthizer: "This decision isn't just about economics; it's about the lives of Americans."

U.S. representatives recently returned from China after a round of talks to see how to resolve issues of Chinese intellectual property theft, government subsidies that keep many U.S. companies out, and forced partnering of U.S. companies with Chinese companies in order to gain market access. These are among many issues that must be settled to avoid tariffs.

But an accompanying U.S. demand for China to reduce its annual trade surplus with the U.S. by $200 billion by 2020 is not seen by many trade experts as something the Chinese would or even could do.

"How can you tell a country it can't improve itself?" asked Robert Kudrle, an international trade specialist at the University of Minnesota.

Negotiations are still in the posturing and bluffing stage, Kudrle said. But in Minnesota, where more than 30,000 work for medical technology manufacturers, Mandle said protectionist tariffs on imports from China and retaliatory tariffs on exports to China add up to "negatively impact Minnesota's economy."

China currently buys $5 billion a year in U.S. medical devices, he noted. A growing Chinese economy and a gigantic, aging population should make for a growth market in U.S.-made medical devices.

"Reciprocal tariffs" and especially non-tariff regulatory barriers applied by the Chinese government "would only serve to benefit Chinese domestic manufacturers at the expense of U.S. — and especially Minnesota — medical technology manufacturers," Mandle said.

Jim Spencer • 202-662-7432