Tariff impact on medical imaging industry

What happened: The Trump administration imposed a 100% tariff on pharmaceuticals entering the U.S., effective June 1, 2022. This followed a Supreme Court ruling in June 2021 that struck down tariffs imposed under the International Emergency Economic Powers Act (IEEPA), leading to refund litigation and strategic rethinking by companies. Varex Imaging, a medical imaging company, has largely passed on tariff increases to customers and expects modest gross-margin improvement as older, higher-tariff inventory clears.

Market impact: The tariffs affect the medical imaging industry and pharmaceutical companies, potentially increasing costs for U.S. households by several hundred to over $1,000 annually. Varex Imaging's margins are expected to improve due to tariff relief, while the company continues to expand in India. Meanwhile, FDA-approved drug manufacturing deals are shifting to Europe, leading to a fall in U.S. contract manufacturing deals.

What to watch next: Varex Imaging's Q4 2022 earnings (expected in late July) will provide insights into the impact of tariff relief on margins. Additionally, the U.S. Trade Representative's review of Section 301 tariffs in late 2022 could influence the future of pharmaceutical tariffs. Lastly, the U.S. Supreme Court's decision on pending refund litigation related to IEEPA tariffs will shape companies' tariff strategies.