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Will a Trade War With China Wreak Havoc in US Healthcare?

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Ever since President Trump’s imposition of tariffs on steel and aluminum imports from China, markets at large have suffered dearly. There have been a number of meetings between trade representatives from both the countries but all in vain.

To further escalate trade-war tensions, reports have surfaced from the U.S. Treasury Department that it has been drafting policies, which prohibit firms having more than 25% Chinese ownership to benefit from emerging technologies in the United States.

Such policies would have negative ramifications for industries like healthcare, biotech and pharmaceutical which are tech-heavy and need to acquire industrially efficient technologies for growth and sustenance. So would a trade-war with China turn out to be a nightmare for the U.S. healthcare sector? Let’s have a look.

Trump’s Protectionism Would Dampen U.S. Healthcare Fortunes

Early-stage pharmaceutical startups and biotech companies have historically benefited from increased access to Chinese investment and resources. Intellectual property rights’ protection is going to hamper the growing entrepreneurial spirit in the biotech space in the long run. The brunt would be borne more by relatively small-scale startups as American VCs focus more on larger startups from top-notch universities.

Further, China has not included any medical products in the retaliatory tariffs that it imposed on the United States and is not likely to do so in the future as well. However, in case such a scenario occurs, it would not be too good for the healthcare industry. As a norm, China refrains from using copies of drugs from American biotech companies. Experts fear that if China gets down to violating patent rights due to the escalation of trade war, it might start copying drugs from companies having significant exposure to the Asian country.

Under such circumstances, companies from the U.S. pharmaceutical and drug industry would have to pay dearly. Such a turn of events would also result in dwindling global share of the U.S. healthcare industry.

Market leaders of the Zacks Large Cap Pharmaceutical Industry such as AbbVie (ABBV - Free Report) , GlaxoSmithKline (GSK - Free Report) , Eli Lilly (LLY - Free Report) , Merck (MRK - Free Report) and Pifzer (PFE - Free Report) would end up being the biggest losers. Such companies not only have significant Chinese exposure but are highly vulnerable to instances of I.P. right infringements. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chinese Investment is Oxygen for U.S. Biotech and Pharma

Chinese venture-capital funds have invested a whopping $1.4 billion in U.S. biotech and drug companies in the period between January through March. This surpasses the $125.5 million in investments by Chinese VCs for the whole of 2017. Part of such an increase can be attributed to China’s efforts in becoming the leader in healthcare investments across the globe.

China increasingly wants to make use of the manufacturing-intensive nature of their economy. Another reason for typically increasing investments in U.S. biotech firms is that China wants to access novel therapies that it can make use of along with high returns from such investments.

However, any restriction by the Trump administration on Chinese involvement in U.S. biotech can spell doomsday for the industry. One of the big reasons is that it is relatively cheaper for the drug and pharmaceutical companies to perform clinical trials in China. The China Drug Administration (CDA) or the Chinese FDA takes less than a third of the time taken by the U.S. FDA in approving results. Consequently, costs involved are also lower over there.

To Conclude

The U.S. pharmaceutical industry has suffered in the recent past due to rising costs associated with raw materials. Trump’s act of tariff imposition on China has proved to be rather counterproductive for several industries at large and might turn out to be nightmarish for the healthcare industry.

It is a known fact that Chinese investments breathe life into small and mid-scale healthcare companies in America. Finally, in the event of China infringing drug patent rights from American companies having significant operations on Chinese shores, a bloodbath in the healthcare industry would be inevitable.

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