Made in Mexico: lifesaving devices
Tijuana factories show difficulty of untangling complex trade ties
TIJUANA, Mexico — The North American Free Trade Agreement has transformed this sprawling border town from gritty party spot to something quite different: a world capital of medical devices.
Trucks choke boulevards lined with factories, many bearing the names of U.S.-run companies: Medtronic, HillRom, DJO Global and Greatbatch Medical. Inside, Mexican workers churn out millions of medical devices each day, from intravenous bags to artificial respirators, for the global market.
Nearly everyone in the United States — even the world — who has a pacemaker walks around with parts from Tijuana.
When President Trump threatens to redo trade deals and slap steep taxes on imports in an effort to add more manufacturing jobs, he focuses largely on car companies and airconditioner makers. But the medical devices business makes a particularly revelatory case study of the difficulties of untangling global trade.
The United States imports about 30 percent of its medical devices and supplies. The trouble is, these jobs are among the most difficult to relocate to the United States. To ensure the safety of products that often end up inside the human body, medical devices are strictly regulated and require lengthy approvals from the Food and Drug Administration and other inspectors.
If the companies do keep major operations outside the country, new taxes on imports would most likely increase the
cost of their products — a change that could jolt not only the devices industry in coming years, but also health care nationwide.
In Tijuana, the factories are bound to stay put for years, at least. During that time, health executives say, a border tax could fracture the industry’s sophisticated global supply chain and force U.S. hospitals to pay more for vital necessities — or worse.
“The real danger is the supplies won’t be available at all,” said Dr. John Jay Shannon, CEO of the Cook County Health and Hospitals System in Chicago.
U.S. hospitals rely on heaps of bandages and surgical gloves from China, suturing needles and artificial joints from Ireland, and defibrillators and catheters from Mexico. The value of imports of medical devices annually more than tripled from 2001 to 2016, when they reached $43.9 billion, according to BMI Research, a unit of the Fitch Group.
Mexico is the leading supplier, ahead of Ireland, Germany and China. And few places illustrate this changing landscape, or help explain the complexity of the industry, as well as Tijuana, 20 miles south of San Diego.
The city houses the highest concentration of Mexico’s medical device firms, 70 percent of which are U.S.-owned, according to the local development group. Companies have invested heavily in Tijuana, constructing long, low-slung factories tucked into the hilly terrain. Giant banners hanging from manufacturing plants plead for workers to join them.
Those hired pass through imposing security gates to begin shifts operating advanced machinery or delicately sewing pig tissue onto stents for heart valves, and trucks zip in a steady line across the border in fast-track lanes into California.
But the possibility of new protectionist trade policies is looming over this buzz of activity. The question for many of the people is whether it will upend the economic incentives that led U.S. companies to invest in the city in the first place.
Trump has argued that a border tax is needed to keep well-paying jobs in the United States and dissuade companies from relying on Mexican workers who earn a fraction of U.S. wages. Technicians at medical device factories in Tijuana make about $14 an hour, compared with about $25 an hour for technicians at U.S. factories.
Now, even the city’s unflappable longtime entrepreneurs are unsettled by the shift in trade talk.
U.S. companies draft plans to build new plants — or expand existing ones — years in advance, said Miguel Felix Diaz, vice president of the Baja California Medical Device Cluster, an organization that represents 63 medical device manufacturing plants that employ 60,000 Mexican workers.
“For that reason now,” he said, “you don’t know if you start some operation tomorrow how it’s going to be affected.”
If the United States does approve a border tax, Felix Diaz added, “the final customer is going to pay.”
The final tally of just how much U.S. customers — hospitals, clinics, nursing homes and doctors’ offices — would pay is unclear.
The price on many medical devices is negotiated by group-purchasing organizations, which harness the purchasing power of hospitals and others and would try to mitigate price increases.
Mike Alkire, chief operating officer at Premier, which negotiates for some 3,750 U.S. hospitals, said that while prices would initially rise if the Trump administration hit countries like Mexico or China with tariffs, “we’ve got enough diversity in the way we source products, we think we can manage the costs.”
“Over the long term,” Alkire added, “we do think the market will stabilize and the most efficient place to produce products will occur.”
But CEOs at some of the largest hospitals in the United States are nervously watching the gathering legislative, economic and geopolitical storm.
A border tax, experts say, would ricochet back and forth across the U.S.Mexico border — and around the world — in unintended ways.
Mexico’s medical device industry buys much of its raw materials and capital machinery from U.S. suppliers. The U.S.owned Integer plant in Tijuana, for example, buys 90 percent of its raw materials, essentially duty-free, from the United States: stainless steel to be stamped into cups used for hip replacements and plastic to be molded into catheters. Then half of the factory’s output is shipped back to the United States and much of the rest to U.S.-owned companies in Puerto Rico, Switzerland and Singapore.
If Mexico imposes tariffs on raw materials from U.S. suppliers, a likely response to any border tax imposed by the United States, production costs in Mexico would spike.
“The damage wouldn’t just to be to the Mexico operation, it would be to U.S. suppliers,” said Christopher Wilson, deputy director of the Mexico Institute at the Woodrow Wilson International Center for Scholars.
“People need to understand this relationship we have goes both ways,” said David Mayagoitia, president of the board of the Tijuana Economic Development Corp.