It's beenestimated that 80% of the raw ingredients for drugs used in theUnited States and 30% of the inputs used for medical devices comefrom outside of the United States, including China. Supply chainprice increases caused by potential trade wars have the potentialto raise consumer prices, from drugs to heart monitors. (Photo:Shutterstock)

Tariffs and impending trade wars between the United States andother countries has been front and center in the news recently. Infact, a new set of tariffs went into effect in July.

A tariff, by definition, is a government-imposed tax on importedor exported goods and services, usually in the form of apercentage, such as 25% on aluminum imports. When countries imposetariffs on each other, often as retaliation, trade wars canensue.

The most prominent trade war in recent U.S. history was a resultof the Smoot-Hawley Tariff of 1930, which led to a global tradewar, and in the opinion of many, was a factor leading to the GreatDepression.

Proponents of tariffs believe that they help “level the playingfield.” However, many economists and analysts believe that tariffsmake impacted goods more expensive to consumers and increase costsfor companies requiring the tariffed goods as inputs for theirproduction.

Over time, these higher costs can curtail spending, economicgrowth, employment and production.

Recently, headlines in the trade wars have highlighted the autoindustry, which can be significantly affected by tariffs onimported steel and aluminum.

Health care is another industry which can potentially be harmedin trade wars:

Drugs and medical devices could become significantlymore expensive. An April 5, 2018 Washington Post articleestimates that 80% of the raw ingredients for drugs used in theUnited States and 30% of the inputs used for medical devices comefrom outside of the United States, including China. These supplychain price increases have the potential to raise consumer prices,from drugs to heart monitors. This could counteract policy effortsto lower market prices for items such as prescription drugs as wellas to providing coverage for those with pre-existingconditions.

Investments in health equipment and personnel coulddecline. To the extent that higher costs of productioncurtail planned capital expenditures by hospitals and medicalcenters, the demand for technicians and other medical personnelcould decline. This, in turn, may reduce the supply of qualifiedmedical professionals in future years.

Societal well-being may suffer. If health carein general becomes more expensive and less affordable due toadditional costs, investment in preventive care and healthfulbehavior may decline, which will reduce the well-being of societyboth nationally and globally.

NOTE: Information presented herein is for discussion andillustrative purposes only and is not a recommendation or an offeror solicitation to buy or sell any securities. Past performance isnot a guarantee of future results.

Fred Slade has over 25 years of experience inthe investment management and retirement services industries. He isAVP-Senior Director, Investments for Pentegra RetirementServices, a leading provider of retirement services tofinancial institutions and organizations nationwide, founded by theFederal Home Loan Bank System in 1943. Mr. Slade manages over $1billion in internal bond portfolios and provides analytics andstrategy for Pentegra's Defined Benefit and Defined ContributionPlans. Mr. Slade holds a Ph.D. in Economics from University ofPennsylvania and a CFA, and has presented at a number of seminarsand conferences.