Implications of the US Trade Tariffs & Funding Cuts for the Life Science Market

The US trade tariffs and science funding cuts – implications for the global life science market.

The trade tariffs and science funding cuts made by the Trump administration in the US have been well documented, but what do they mean for the life science community? At Pivotal Scientific our clients have already reported an effect on their business, with some expressing serious concern for the future.

National Institutes of Health (NIH) funding cuts

The NIH is the largest public funder of biomedical research in the world, investing most of its nearly $48 billion budget in medical research. This budget has now come under threat when in February President Trump proposed a cap on certain funding expenses. The NIH provides grants to universities, hospitals and other research groups. The grant money covers “direct costs” which includes researcher salaries and laboratory supplies, and “indirect costs” which are expenses such as electricity, buildings and equipment. These indirect costs can be around 50% of the grant money claimed but are due to be capped at 15%. This may save the US government $4 billion a year, but likely, reduce the amount of scientific research being performed. So far, these cuts have been blocked by a federal judge while a lawsuit is underway, but this uncertainty is leading to reduced spending on laboratory regents and consumables by research scientists.

USAID temporary shutdown

As part of his “America First” program, Trump has targeted international aid spending.    The Unites States Agency for International Development (USAID) is the world’s largest funder of humanitarian aid projects. Alongside the NIH funding caps, Trump signed an executive order to enact a 90-day spending freeze, effectively stopping all projects. This has resulted in USAID-supported clinical trials that are in the recruitment stage being cancelled, and ones that are currently running being brought to an abrupt end. Many of the USAID programs are providing lifesaving healthcare services or famine relief. In addition to the ethical issues of stopping humanitarian aid and halting clinical trials when patients still require monitoring, much of the aid comes from the US, so that is income that healthcare providers or farmers will no longer be receiving. So again, reducing spending in the medical sector.

Trump’s Tariffs

Trump’s tariffs are trade policies designed to reduce trade deficits and protect US industries, especially in manufacturing and agriculture. Import taxes were already in place, but these have been increased to levels which have angered foreign leaders and caused trillions to be wiped off international stock markets. At the time of writing Donald Trump has relented on many of his tariffs causing global share prices to once again rise. He has introduced a 90-day delay on tariffs but only to countries which did not retaliate. A few countries did retaliate causing a trade war, this is the case with China, import taxes on China have now increased from 104% to 125%.

The effects will be felt globally.

So far, we have seen reduced spending by labs as funding becomes uncertain or is withdrawn. This affects suppliers of research reagents and equipment manufacturers globally. Non-US suppliers become less competitive in the US due to price rises caused by tariffs being passed on to customers. If your main market is the US and you are subject to tariffs (Canadian companies for example), this could be catastrophic for business. Such companies will need to look at other markets, Europe and Asia will be targeted markets as the US becomes less profitable. It is not just non-US companies that will be affected. US life science companies which import reagents from abroad as part of their manufacturing processes will find their expenses increasing, which they will need to pass on to a dwindling customer base. The tariffs are especially bad news for US research reagents distributors who import foreign goods into the US, the prices of their products, by their nature, will be the hardest hit by tariffs.

The situation is changing on a daily basis. Many of these changes may never come to pass as they are being legally contested within the US, but the general uncertainty this brings is never good for business. Reduced science funding and increasing prices could result in smaller manufacturers going out of business. This could result in less investment in science in general, but we will have to see how it all plays out.

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