According to a company with a vested interest in the situation, the newly imposed federal excise tax on medical devices is having an unfortunate consequence—relocation of manufacturing from the United States to Mexico. It's not a tax dodge—the tax still has to be paid. Moving to Mexico is a way to cut costs, according to an outfit called Co-Production International, a California company that is glad to help companies make the move.
"We've seen a dramatic increase in online and personal inquiries from medical device manufacturers since the tax went into effect in January," says Enrique Esparza, president of CPI. "Mexico has always offered the better alternative to overseas production, beginning with unbeatable proximity to North American markets, our low-cost & highly technical labor force, to our pro-business environment and the no-tariff NAFTA [North American Free Trade Agreement] provisions enjoyed by Mexico, the U.S. and Canada. It's no surprise the 'Mexico option' has moved to the top of many international manufacturers business plans as they now face a 2.3% increase in the cost to sell of their products due to the (Affordable Care Act) going into effect."
Adding insult to injury, the company has even come up with new jargon to describe the trend—near-shoring. No, it's not offshoring, or reshoring, or onshoring—it's near-shoring.
As I have written in the past, the American medical device industry has been in a two-to-three-year-long drive to adjust to a new business world. The recession of 2008-2009 reduced demand and efforts were in place to dramatically reduce costs before passage of the Affordable Care Act of 2010.
The Affordable Care Act will accelerate those trends. Medical costs in the United States have been a drag on the economy and need to drop. Medical care also needs to become more affordable and more accessible.