American Biotech: An Industry on Hold
The Biotech industry is regarded as one of the most profitable sectors in the United States. According to statisa.com, it’s estimated that the United States’ Biotech industry has an annual profit of over 140 billion dollars. Companies from all over the world are vining for their piece of the American Market. Among those companies was a well know Chinese group known as Fosun.
Fosun is an international Chinese conglomerate known for investing in everything from the banking sector, video gaming, mining and processing of raw materials, and many others. This diversity allows Fosun the ability to raise large amounts capital, and fund projects all across the world. One area of intense focus for Fosun was, and still is, American Biotech sector. But now, Fosun’s investment and development plans have been hold.
As part of a new trade policy, President Donald Trump has placed billions of dollars’ worth of tariffs on goods and services originating from China. In addition to tariffs, the United States is also cracking down on foreign investment into industries related to national security. The Committee on Foreign Investment in the United States (CFIUS) is actively investing claims that Chinese investment groups are threatening United States National security interests by taking over areas of the USA Biotech industry.
This new business climate has caught many Chinese investment groups off guard. Deals between corporations now suddenly have to go through new regulations, and profits off those deals may be subject to new tariff taxes. This is proving to be a major headache for groups like Fosun. So much, that Fosun is actively considering canceling much of its investment in the United States Biotech sector.
A brief History of Tariff’s in the United States
During the great Depression, Congress signed a tariff bill called the Smoot-Hawley Tariff Act of 1930. The goal of this bill was to help protect the falling stock market and farming industry. However, the bill was expanded to include about 20,000 products from various sectors. While the US successfully reduced its import dependence over the next couple of years, the retaliatory measures from other countries led to 61% dip in US exports by 1933. Eventually the act was repealed with the enactment of the Reciprocal Trade Agreements Act of 1934.
So since 1934, the President of the United States has always had the power to renegotiate trade, without prior approval of congress. This means that trade and tariff policy will always remain in the hands of the current USA president. This means that companies like Fosun’s future will be completely dependent on the next USA election.
The next US Presidential election will take place in 2020. Should President Trump be defeated, the new US President will have the ability to reverse much of President Trump’s current trade policies. They could even create a completely new a pro Chinese trade policy. Alternatively, President Trump could win the election and seek to escalate his trade policies even further.
Hold Em’ or Fold Em?
This places Bio-tech companies Like Fosun in a very awkward position. They can choose to leave the US market and wait for a more favorable trade climate. But by doing so, they will risk competitors filling the gap they left behind. Or they can continue to operate inside of the United States and see what happens in the 2020 elections. Either way, Fosun will have to weight it’s options in this uncertain business climate.
Alternatively, Fosun could work closely with US regulators in the Committee on Foreign Investment in the United States (CFIUS) and gain their approval. But government regulatory groups are never known for their speed and ease of processing. Audits and approvals for projects could take months, if not years to complete.
Another consideration is that America isn’t the only game in town. Currently the European Union’s regulatory authorities are much friendlier to Chinese investment. According to a new report from multinational law firm Baker Mackenzie, newly-announced Chinese merger and acquisition activity into Europe in all sectors was $20 billion compared to $2.5 billion in North America in the first half of 2018. Their report showed foreign investment from China swung dramatically toward Europe – while US revenues fell 92% from $24 billion in the same period last year. So it’s clear that Chinese firms like Fosun are going to continue to make deals with countries that have the friendliest investment climate.
Tell us your thoughts? Do you think companies like Fosun will stay in the USA? Will they seek to invest elsewhere? Leave your comments below!