US-China Trade Tension: Increasing Uncertainty for Biopharma

By Mile Iliev Zachary Ogorzalek

Aggressive Trade Policy as Foreign Policy

In recent years, the US government has increasingly leveraged trade policy as a tool for broader U.S. foreign policy. This diverges from the historical approach focused on revenue, industrial policy, and national security. This shift, while unrelated to underlying scientific challenges, operational strategies, or patient outcomes, has the potential to disrupt our industry and significantly affect emerging and growing biopharmaceutical companies.

Trade policies are actively used to punish countries for transgressions such as anticompetitive behavior, espionage, and facilitating drug trafficking. These proposals are now coming from both ends of the political spectrum.

• On May 14, our current President imposed higher tariffs (up to 100%) on goods coming from China including semiconductors, electric vehicles, solar panels, and steel. This is an attempt to keep American companies competitive with heavily subsidized Chinese businesses.
• The current Congress is considering the “Biosecure Act” that could prohibit federal agencies from contracting with Chinese companies. It could also force biotechnology companies to sever partnership ties with Chinese companies that are deemed threats to our national security, like WuXi, BGI, MGI, and Complete Genomics.
• Our former (and possibly our next) President has suggested even more aggressive use of trade policy in our foreign relations. Major components of his foreign policy proposals include a global 10% blanket tariff on all imports and a 60% blanket tariff on imports coming from China.

These pieces of legislation indicate increasing US concern about Chinese influence on the American market and could have direct impact on the biopharma industry.

Navigating Trade Policy Shifts: Uncertainty for Emerging Biopharma

Trade policies based on US foreign relations with China and American political interests inject uncertainty and volatility into the supply chain for biopharma materials, making supply chains, planning, and budgeting less predictable.

Biopharma companies will likely need to absorb the tariffs and may have to pass the cost through to patients and payors, ultimately burdening the healthcare system.

In the long term, punitive trade policies will reduce the benefit, and potentially the viability, of sourcing key materials from China.

How to Protect Yourself Now

• Monitor how these proposals develop and how regulations evolve over time.
• Assess the risk these legislative and regulatory scenarios may impose on your existing and future supply chain.
• Initiate contingency planning to mitigate scenarios with substantial risk. Planning is cheap insurance when uncertainty is high.
• Evaluate alternate sources for your high-risk partners to identify if there are more advantageous regions for sourcing to prevent (or counteract) disruptions.

If you want help navigating this evolving ecosystem to maximize the benefit to your company, contact our team of experts today at 1.857.245.7025 or info@convergeconsulting.com.