How New Tariffs Could Impact Health Care

On March 4, 2025, President Donald Trump imposed a 25% tariff on all imports from Canada and Mexico, and a 10% tariff on goods from China, escalating trade tensions and prompting concerns across various sectors, including health care.  These tariffs, aimed at combating illegal immigration and drug trafficking, have major implications for the U.S. healthcare system, especially in the supply of medical products and services. 

Canada and Mexico’s Role in U.S. Health Care Supply Chains 

Canada, China, and Mexico are integral to the U.S. health care supply chain, providing a substantial portion of pharmaceuticals, medical devices, and essential raw materials. For example, Canada is a primary supplier of prescription medications, offering drugs that are often more affordable than their U.S. counterparts. Mexico contributes significantly by manufacturing medical devices, including syringes, diagnostic equipment, and surgical instruments, as well as components vital for medical device production. China provides a range of medical products, including syringes, medical masks, respirators, and gloves. 

Direct Effects on Medical Supplies and Equipment 

The newly imposed tariffs are expected to disrupt the availability and affordability of medical supplies and equipment: 

1. Increased Production Costs: Many medical devices and supplies are manufactured using steel and aluminum, materials subject to the new tariffs. This will likely lead to higher production costs for manufacturers, who may pass these costs onto U.S. health care providers and patients. Hospitals and clinics will also face increased expenses for essential equipment, potentially impacting budgets and patient care quality.  The American Hospital Association estimated medical supply expenses account for around 10.5% of the average hospital’s budget, totaling $146.9 billion in 2023 – a $6.6 billion increase over 2022. 
2. Supply Chain Disruptions: The tariffs may prompt manufacturers to seek suppliers outside Canada and Mexico, potentially leading to supply shortages or delays during the transition. Such disruptions could affect the timely availability of critical medical supplies, impacting patient care and treatment schedules.
3. Increasing Domestic Supply: It has been noted that domestic production of pharmaceuticals and supplies could ramp up due to these tariffs.  However, this will take time – so in the short run, there will be supply chain disruptions until domestic alternatives can be found. 

Impact on Pharmaceutical Availability and Costs 

The pharmaceutical sector is particularly vulnerable to these tariffs: 

1. Increased Drug Prices: Many prescription drugs are manufactured in Canada and Mexico. In fact, the U.S. imported $8.4 billion in medications (mixed in dosage) from Canada in 2024.   In addition, China is a major supplier of both raw pharmaceutical ingredients and finished medications to the U.S., especially for generic drugs, which constitute 90% of U.S. prescriptions.  The tariffs may lead to higher prices for these medications in the U.S., increasing costs for both health care providers and patients. This is especially concerning for patients reliant on affordable medications for chronic conditions. 
2. Potential Drug Shortages: If manufacturers reduce exports to the U.S. due to tariffs, there could be shortages of essential medications. This scenario would strain the U.S. health care system, particularly affecting hospitals and clinics, many of whom rely on “just in time” supply logistics and don’t necessarily have a medicinal stockpile.  In the long run, we could see a ramp up in domestic supply – although this will not necessarily be cheaper for providers.  

Broader Economic Implications for Health Care 

Beyond direct costs and supply issues, the tariffs may have broader economic effects that indirectly impact health care: 

1. Stagflation Risks: Economists predict that the tariffs could lead to mild stagflation characterized by increased inflation and slowed economic growth. This economic environment could result in reduced funding for public health programs and increased financial strain on individuals seeking health care services.  
2. Retaliatory Measures: Canada and Mexico have placed a retaliatory 25% tariff on goods from America. This will further disrupt trade and supply chains, exacerbating challenges within the health care sector, including potential delays in medical supply deliveries and increased costs.  

Potential Mitigating Actions 

The Trump administration has acknowledged the potential negative impacts of the tariffs on certain sectors and is considering exemptions, particularly for products like automobiles. However, it remains uncertain whether medical supplies and pharmaceuticals will receive similar considerations. Health care stakeholders, like AdvaMed and the American Hospital Association, are already lobbying for exemptions.  

Conclusion 

The recent imposition of tariffs on imports from Canada, Mexico, and China presents significant challenges for the U.S. health care system. Increased costs, potential supply shortages, and broader economic repercussions threaten to disrupt the immediate delivery of health care services. It is crucial for health care providers, policymakers, and industry stakeholders to collaborate in addressing these challenges, ensuring that patient care remains unaffected amidst shifting trade policies.