Trump's tariffs cloud the future of a medical wonder

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3 days ago

CORRECTION: A previous version of this article mistakenly identified Toshiba in Japan as a top manufacturer of CT scanners. Toshiba's medical subsidiary was acquired by the Japanese company Canon in 2016. Originally moved May 25.
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FORCHHEIM, Germany - On the outskirts of this bucolic town, in a region known as 'das Medical Valley,' workers on a vast factory floor are assembling what they describe as the future: the game-changing scanners that can give doctors the most detailed images ever of what is happening inside the hearts, lungs and brains of their patients.
One of the scanners, two decades in the making and called the 'Naeotom Alpha,' is unique, say its inventors at Siemens Healthineers, a global leader in CT technology. 'The image quality is incomparable,' boasts Jesús Fernández, head of CT product marketing at the company, comparing the device's technological leap to the difference between a 1970s television set and HDTV.
Since the scanners started shipping four years ago, leading hospitals around the world have ordered them. The Food and Drug Administration called the Naeotom Alpha - after approving its use - 'the first major new technology for computed tomography imaging in nearly a decade.' Forty percent of the scanners are exported to the U.S. market.
Now Siemens Healthineers, other medical device makers and their customers are reckoning with a new challenge: the impact of President Donald Trump's global tariffs.
The Trump disruption - the possible winners and losers, and the pure chaos - is roiling global manufacturers, from carmakers to champagne vignerons, as companies scramble to reassess their global trade partners and complex supply chains while trying to divine the president's next move.
High-end medical devices, including those made by American manufacturers, may be especially vulnerable as many machines are built of components from a dozen vendors around the world. Some scanners cost millions of dollars and are so cutting-edge that hospitals publish a press release when they arrive.
In early April, Trump targeted the European Union with a 20 percent levy. Days later, he paused those tariffs for 90 days, leaving a 10 percent across-the-board tax for most European imports, including medical equipment.
The pause was set to end at the beginning of July. But on Friday, Trump threatened a 50 percent tariff on all goods from the E.U., beginning June 1, while complaining that trade negotiations with the bloc are 'going nowhere.'
The medical tech industry - which produces everything from simple syringes to robot surgeons - has pleaded with Trump officials and members of Congress to exempt their products. The tariffs are too broad, recklessly so, critics say, arguing that a medical device is not like an automobile, but a thing vital for human health.
Opposition to tariffs on medical devices hasn't come just from Europe, but from the United States, too.
Competition in the CT scanner market is already fierce among top manufacturers, which include two American companies, GE and Philips, alongside Canon in Japan and Germany-based Siemens.
Scott Whitaker, the CEO of AdvaMed, a prominent U.S. lobbying association for the sector, warned that Trump's threat of broad-based tariffs would act as an excise tax. 'It will have a negative impact on innovation, cost jobs, and increase overall costs to the health care system,' he said in a statement.
'Historically, industries with a meaningful humanitarian mission have been exempted from broad tariffs, and as a result we have seen no to low tariffs on med-tech from all key trading partners.'
The Trump tariffs on medical equipment will not only cost foreign manufacturers but American companies, too.
In an annual report to shareholders, GE HealthCare warned in April that U.S. tariffs imposed on products from China, along with any future levies on products from Canada, Mexico or other countries, 'will likely result in additional costs to us.'
It was still too early to say whether the price of the Naeotom Alpha would be impacted. Siemens Healthineers warned earlier this month that tariffs and the 'significantly increased volatility of the geopolitical environment will weigh on our business this year.' As a result, the company lowered the midpoint of its projected earnings per share.
On the call with analysts, Jochen Schmitz, the chief financial officer, said 'the biggest impact is imports in the U.S. from Europe.'
Akin Demehin, vice president of quality and safety policy at the American Hospital Association, said tariffs could disrupt supplies of medical equipment and lead to higher costs.
'All CT scanners require some maintenance,' he said. 'To the extent that those get caught up in overseas supplies and tariffs impact their availability and price, that can potentially impact what the maintenance of those machines looks like,' he said.
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A tool for saving lives
In Germany, the Siemens Healthineers engineers describe their photon-counting CT scanner as a kind of medical wonder that can produce clearer, faster images for quicker diagnosis in a way that is less invasive for patients. It can help save lives, they say.
Unlike conventional CT devices that measure the total energy contained in many X-rays at once, the Siemens devices deploy photon-counting detectors that capture each individual X-ray that passes through a patient's body, which results in more-detailed images.
The typical patient can be scanned in just three seconds. The lower radiation compared with conventional CTs means the technology can also be used during pregnancies and on children and babies.
Modern, conventional CT scanners primarily use solid-state crystal detectors made from a variety of materials. But for the photon-counting Naeotom model, Siemens Healthineers relies on cadmium telluride crystals, which the company now produces as well, including at the Forchheim plant.
The intricacies of the process are kept tightly under wraps. In one room, identified as 'Kristallzüchtung,' or 'crystal growing,' fire in a tall black furnace emanates a soft glow. Inside, the synthesis of cadmium and tellurium that creates cadmium telluride is underway.
'Sometimes it feels a bit like alchemy,' said Paul Heimann, team lead of crystal growth.
Siemens Healthineers is aiming for all its CTs to be photon-counting devices by 2040. Many in the industry will likely follow its path.
Above the testing bays where the humming machines were being readied are star-spangled banners identifying the destination of both conventional and new photon-counting devices. 'U.S., U.S., U.S., U.S.,' points out David Engelstätter, head of CT production at the Forchheim plant.
The Naeotom Alpha has already been purchased by several U.S. institutions, including the Mayo Clinic, New York University and Duke University, according to Siemens Healthineers. Some of the hospitals released jubilant press releases when the scanner was approved for use by the FDA.
Asked to comment on the possible threat from tariffs, Duke said in a statement: 'We are always alert to market changes and are working to ensure we have the necessary equipment and supplies for optimal patient care.' NYU and Mayo declined to comment.
Overall, the U.S. accounted for more than a quarter of Siemens Healthineers' business last year.
Moving production, particularly of the unique photon-counting CTs, is out of the question, said Matthias Kraemer, head of corporate communications for Siemens Healthineers.
It did not make business sense to have a lot of small factories churning out small numbers of devices, either in Germany or abroad, he said. 'We need that global scale.'
The pioneers here in Bavaria say it is the patients who stand to suffer most from trade barriers.
'We all have family, friends, certainly sick friends or family members,' Engelstätter said on the shop floor. 'And then you think, what a shame it would be if I were in the U.S. right now and I were denied this screening - all due to external decisions.'
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Tax policy, not tariffs
In the United States, hospitals are bracing for the impact of tariffs. Higher costs would have to be absorbed, or passed along to insurers - including the U.S. government - and patients.
Some 46 percent of hospitals expect that tariffs will increase facility costs in 2025, while an additional 42 percent said they anticipate higher costs when their contracts for supplies are renewed next year, according to a recent Bank of America survey of 50 chief financial officers at hospitals.
Of the finance chiefs who responded, 91 percent expected costs to go up for medical equipment and devices.
In reporting earnings last month, two major American firms that make medical devices - Johnson & Johnson and Abbott Laboratories - both estimated that tariffs would cost them a few hundred million dollars this year. But they also reaffirmed that they still expect to make about the same amount of money for the full year as they previously projected.
Joaquin Duato, Johnson & Johnson's CEO, said that if the goal is to incentivize more manufacturing in the U.S. in both medical technology and pharmaceuticals, 'the most effective answer is not tariffs, but tax policy.'
CT scanners range in cost from about $500,000 for entry-level machines to more than $3 million for the highest-end versions. The impact from tariffs could vary widely depending on their individual characteristics, such as where they are manufactured and what countries provide the key components, according to supply-chain experts.
But it may take time for hospitals to directly feel the effects of tariffs.
Hospitals may have multiyear contracts for machines, services and repairs, sparing them from immediate impacts, said Josh Hilton, senior director for diagnostic imaging and radiation oncology at Premier, Inc., which contracts with manufacturers to supply hospital customers.
Still, the uncertainty of tariffs can influence hospital spending. 'When things like this happen, the purse strings tend to tighten up a little bit,' Hilton said. Instead of replacing an aging CT scanner this year, a hospital may push back the expenditure to next year, he said.
Jesús Rueda Rodríguez, director general of industrial policy at MedTech Europe, which lobbies for European manufacturers, described complex supply chains. 'Components arrive through the United States, China, Europe,' meaning 'we can get hit by tariffs not once but multiple times.'
The devices are highly regulated by health safety authorities, he said, as are the factories. As a result, 'you can't just pack up and move,' he said.
Lukas Kratz - one of 5,000 employees at the Forchheim site - is a team leader, overseeing the assembly of the photon-counting CTs. Unlike in large-scale automobile factories, much of the work here is still done by hand. Now 29, he began working for Siemens a decade ago after completing his training as an electronics engineer.
'It's not just one device we're working on; we have many variants with many options,' he said. 'It's very difficult to show just anyone how to do this.'
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Gilbert reported from Washington and Booth from London.
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