00:00:00 Speaker a
Since you have the opportunity to talk to people in the Medtech industry here, it seems like one of the biggest headwinds to tariffs this year, right? At least some of these things are made in China and other regions abroad and are imported here to the United States. So I would love to start there and get what you hear from these companies.
00:00:40 Dave
Excellent. Well, thank you for having me today. Uh, you’re right. Tariffs have always been a major concern for investors. This has indeed prompted the company to lower its 2025 outlook in its recent earnings call. If you listen to earnings calls for the first quarter, most companies do reduce tariffs that reflect that time. If you look at MedTech in the context, about 70% of the medical devices actually sold in the United States are made in the United States. This is a large amount of onshore manufacturing. Unlike some other parts of healthcare, you do see IP transfers around the world to manage effective tax rates, Medtech R&D has a huge place to live in the United States. So when we reflect on where the tariff policy is today, we actually expect as we experience the second quarter earnings, well, considering the obvious tariff rates, especially in April, April, April, the income season, especially in China, especially on China.
00:02:45 Speaker a
That’s those supply chain statistics that are interesting, David. What has changed in the last 5 or 10 years of the industry?
00:03:10 Dave
So, for Medtech, this is actually a very long strategy. And I think that’s a good point because in the first round, when tariffs hit levels, the trend did accelerate, and it was the first Trump administration in the first round. But remember that the medical equipment industry is very much a manufacturing industry. So things like freight and logistics costs do go into the calculation when companies consider where to put their manufacturing industry. It also allows them to compete locally. So, for example, most people will GE Healthcare have about 12% of their revenue in China, about 70% to 80% of what they sell in China are produced locally, uh, and locally. This gives them the ability to compete effectively with companies based there. The same is true in the United States. Well, the company is trying to bring manufacturing very close to R&D, the reason is rapid prototyping, well, trying to accelerate product development because it is an iterative industry. Keeping product development and manufacturing consistent with each other is actually a competitive advantage for multiple companies.
