The recent imposition of emergency tariffs on products from China and Hong Kong has raised significant concerns for biotech companies, particularly those considering or currently engaged in manufacturing contracts with Chinese entities. This post aims to provide an overview of the recent emergency tariffs targeting China and their potential implications for the biotech industry.
Understanding the Emergency Tariffs on China
Effective Date and Scope
- As of March 4, 2025, the United States has imposed a 20% ad valorem duty on all products originating from China and Hong Kong.
- These tariffs are distinct from the previous “trade war” tariffs under Section 301, which have been in place since 2018-2019. The new tariffs are additional and cumulative, meaning they apply on top of any existing duties, taxes, fees, or charges.
- The tariff landscape is changing quickly as the countries involved negotiate. Keep a careful eye on this space.
Legal Basis
- The tariffs are justified under the International Emergency Economic Powers Act (IEEPA), 50 USC 1702, as an emergency response to China’s involvement in the production and exportation of fentanyl and related precursor chemicals, which are contributing to the opioid crisis in the United States.
Exclusions and Exemptions
- Currently, the only excluded products are:
- Donations intended to relieve human suffering, such as food, clothing, and medicine.
- Informational materials, including publications, films, and artworks.
- There is no announced process for item-based exclusions at this time.
- De minimis treatment is available for now, allowing duty-free treatment for eligible items shipped by international postal service. However, this exemption may be removed in the future.
Procedural Aspects
- The duties were imposed as a national security measure, bypassing the usual public hearing or notice-and-comment process.
- Similar tariffs were imposed on Canada and Mexico but have since been modified to exempt items eligible for duty-free entry under the United States-Mexico-Canada Agreement (USMCA). No such free trade agreement exists with China or Hong Kong.
Implications for Biotech Companies
Impact on Pharmaceutical Products
- Unlike previous tariff measures, there is no broad exclusion for pharmaceutical products under the new emergency tariffs. This lack of exclusion could adversely affect patients’ access to life-saving medications and adversely impact biotech companies through increased costs or more limited counterparty options.
Strategic Considerations
- Biotech companies should closely monitor developments in tariff policies and consider the potential impact on their supply chains and manufacturing costs.
- Engaging with trade and legal professionals is crucial to independently assess the impact of these tariffs and explore possible exclusion requests or pre-existing tariff exemptions under other measures, such as those for experimental prototype drugs (HTSUS code 9817.85.01).
Alternative Manufacturing Options
- Chinese companies with significant manufacturing capabilities outside of China may be able to offer alternative solutions to mitigate the impact of these tariffs. Exploring global manufacturing networks may provide viable options to meet product development and manufacturing requirements.