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How the Trade War Could Affect the US Healthcare Industry

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US-China trade war

By the end of June 25, the NASDAQ Composite, the Dow Jones Industrial Average, and the S&P 500 were down by around 2.1%, 1.3%, and 1.4%, respectively. The falls were an acute reaction to the escalating trade wars between the US and its other economic allies.

In the context of President Trump’s new planned measures to curb China’s investment in major US technology, the Treasury Department was reported to be drafting policies to prevent firms with more than 25% Chinese ownership from acquiring industrially significant technology in the US.

Chinese investment in US biotechnology industry

A recent Bloomberg report highlighted the increasing appetite of Chinese investors for US biotechnology startups with groundbreaking technology. While China has not yet involved medical goods and services in its trade war against the US, a possible restriction on Chinese investment could have an adverse impact on the US biotechnology industry. Early-stage biotechnology and medical device companies could find it much more difficult to secure funding for their research programs, which in turn could result in delays that could affect the viability of their entire research pipeline.

Patent protection

While it seems far-fetched to expect that China will impose tariff barriers against medical products imported from the US, an escalation of this war may result in China refusing to respect intellectual property obligations. Such an event could have a disastrous impact on the profitability of large pharmaceutical companies such as Pfizer (PFE), AstraZeneca (AZN), Novartis (NVS), Roche Holdings (RHHBY), Sanofi (SNY), Eli Lilly (LLY), and GlaxoSmithKline (GSK), which have significant exposure to the Chinese market. China may even start exporting copied prescription drugs to other markets, thereby eroding the overall market of the entire US healthcare industry. Although the probability of such events unfolding is pretty low, the increased uncertainty could definitely prove a dampener for healthcare stocks.

Trade war with other economic allies

The ongoing trade war between the US and other economic allies such as Mexico and certain European countries has already taken its toll in terms of major companies like Harley Davidson shifting their manufacturing base out of the US. The increasing uncertainty related to trade tariffs could result in the relocation of multiple manufacturing facilities, thereby resulting not only in layoffs but also in unanticipated talent acquisition and other related expenses for pharmaceutical companies. The generic pharmaceutical industry could also witness the erosion of its already low profit margins due to rising raw material prices.

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