One entrepreneur’s supply-chain odyssey shows just how difficult it is to quit China
Michael Einhorn wanted to quit China. He really did. He supports the Trump agenda that champions fewer regulations, a lower tax burden for businesses, and elimination of environmental mandates that inflate energy prices. He founded Dealmed on a shoestring in 2006; today it’s one of the two biggest privately owned, non-private-equity-held manufacturers and distributors of medical supplies in the New York–New Jersey–Connecticut tristate market. And he largely buys Trump’s argument that China is cheating on trade. So when the POTUS announced his “Liberation Day” tariffs of 135%, Einhorn figured there must be some decent alternatives to source the 10,000 products including masks, gauze, testing equipment, and gowns that he sells to clinics and health care facilities all over the U.S.
And this wouldn’t even be the first time Einhorn had weaned his company off China. During COVID, when Trump’s first set of tariffs had made importing more costly, Einhorn had pieced together a patchwork of suppliers that had squeezed the Chinese share of his company’s imports down to 15%. How hard could it be to repeat that strategy again?
Nearly impossible, as he found out. Over just five years the manufacturing world has changed so dramatically, that things that seemed possible then no longer make any financial sense. “China dominates the world in most health care manufacturing,” Einhorn tells Fortune. “Their automation, quality, pricing is just superior. I acknowledge the problems with China’s trade practices, but in the lane I play in, it’s just reality. China’s so far ahead of the curve I won’t hurt myself by moving away.”
His odyssey is instructive because it shows how quickly Chinese manufacturing has advanced; how few viable alternatives there are in certain sectors; and ultimately, how even after factoring in tariffs, many businesspeople who want to move away from China, can’t. Says Einhorn: “The administration can scream and yell, but how do you replicate what the Chinese are exporting into the U.S.? It’s just not happening.”
China ramps up
Einhorn’s trade saga starts in the early 2010s, when Dealmed was purchasing only around 15% of what it sold from China, mostly basic stuff such as adhesive tape and paper products such as surgical gowns. In those days, China’s quality for more upscale offerings didn’t match the norm for the U.S. and Europe, notes Einhorn. In 2014, Einhorn made a major pivot from distributor-only to doubling as a manufacturer. Dealmed was buying from wholesalers that purchased the goods from Chinese producers and shipped them from U.S. ports of entry to their own storage facilities and on to Dealmed’s warehouses. Dealmed then provided the final leg of the journey by handling sales to its widely dispersed health care customers served by its corps of reps. Einhorn determined that Dealmed could make more money by eliminating the middlemen, and making the same goods itself, by outsourcing the production to Chinese plants, many of which were churning out the stuff it was getting from the wholesalers. It first moved standard fare such as face masks and washcloths to the contract manufacturing model, then, as the Chinese upped their game, added on-site testing gear and other sophisticated wares.
By 2018, the thriving enterprise was importing 80% of its Dealmed-branded, outsourced products from China. All told, that new business accounted for around 30% of its revenues, and alongside its traditional franchise distributing Chinese brands for wholesalers, its total made-in-China sales contributed 45% of the total top line.
Then Trump’s tariff barrage pushed Einhorn to marshal the first of two dramatic course reversals. In September of 2019, the administration slapped 10% duties on selected Chinese medical exports, and in 2020, raised the levies to 25% on a far longer list. “The first round applied to only a small percentage of our imports from China due to so many exemptions. But the second 25% tariffs hit half of those imports,” recalls Einhorn. The growing antagonism toward China from both political parties, he reckoned, meant the big tariffs were now a lasting fixture of the trade landscape.
Dealmed swapped its purchases of paper for surgical gowns and operating table coverings to the U.S., even though they cost 15% more to make here than in Shenzhen or Nanjing, and relocated its testing-product output stateside as well. By the close of 2019, Dealmed’s glove-making had moved from majority-sourced from China to mainly fabricated in Malaysia. It also found new suppliers in Mexico, Canada, Vietnam, and India. Just before the pandemic struck, Dealmed was collecting just 15% of its revenues from Chinese imports, down two-thirds from its peak two years earlier. “The goal then,” says Einhorn, “was to pull all production out of China.”
How COVID spurred China to get ahead
The “downsize China” gambit proved a winner. The sudden, sweeping outbreak in the nation that birthed COVID shuttered China’s entire export sector in early 2020. By diversifying supply chains to Vietnam, Malaysia, and the U.S., Dealmed succeeded in filling a far bigger share of orders to doctors’ offices and clinics than its still mostly China-dependent rivals. But once the Chinese manufacturers rebooted in the spring of 2020, Einhorn witnessed up close the gigantic profits they reaped both from super-high, shortage-induced prices charged for normally routine stuff, and the surge in volumes for medical supplies the U.S. eventually imported to fight the scourge. He relates that Dealmed was still buying most of its face masks from China in the spring of 2020—and for months it was paying $2 per flimsy cloth covering, seven times the pre-pandemic charge.
The U.S.-China “Phase One” agreement signed that year effectively ended the big duties on medical imports—except for remaining levies on active ingredients in pharmaceuticals—as it turned out, for the next half-decade. Still, Einhorn’s customers suffered greatly from the Chinese shutdown early in the crisis and feared the return of tariffs. Dealmed led the industry in limiting risks by shunning the world’s biggest exporter and widening its global network. Einhorn reckoned that clinics and hospitals would deem Dealmed’s broad diversification a major advantage over its rivals that mainly remained China-centric.
That’s not what happened. “At first, our customers said, ‘We can’t rely on China,’” Einhorn recalls. “They encouraged us to diversify. We told them we were the best positioned because we had the widest global sourcing. Then, our customers quickly forgot about the COVID disruptions caused by China.” He recounts that the group purchasing organizations (GPOs) that negotiate contracts with manufacturers for equipment sales to hospitals and clinics, and medical practices that deal directly with insurers, dropped their brief enthusiasm for diversifying the supply chain, and sought the best prices, no matter where the gauze, face masks, or devices came from. “It was sad,” declares Einhorn. “Being the most diversified didn’t matter to our customers as memories of the pandemic receded. The insurers would only reimburse the providers based on the lowest cost. It was all about price. You couldn’t get the business by saying the product was made in the U.S. or Malaysia or Vietnam.”
As U.S. health care scoured the globe for the best bargains in the aftermath of COVID, the Chinese medical supplies sector embarked on an enormous expansion in scope and expertise. The impetus: the huge profits generated during the crisis. “The Chinese did a fabulous job building out their manufacturing capacity by reinvesting the big money they made during COVID,” says Einhorn. A prime example: INTCO Medical in Shandong province on China’s east coast. In 2020 INTCO multiplied its operating income sixfold over the previous year, and rechanneled the bonanza into building a web of plants that now covers five cities in its home nation, and a big factory in Vietnam, as well as planting sales organizations in the U.S., Canada, Germany, and Japan. INTCO’s sudden rise reportedly made its founder a billionaire.
The immense improvement in China’s medical-industrial engine triggered another U-turn for Dealmed. “We were growing rapidly and added a couple of hundred new products that we manufactured in the two years after COVID,” says Einhorn. “Some drifted back to China. I’d move a product from China to Vietnam, then a new product would go to China. As that happened, we realized that the best source was China. Its manufacturers became more aggressive post-COVID. They doubled down and invested in their products. Their quality became superior to everyone else’s in the world. No other country could match their automation, their capacity. They became very sophisticated.” Most of all, China offered the lowest prices that fit the U.S. providers’ jump from briefly wanting to widely disperse their purchases to grabbing the cheapest deals.
No better options
In 2024 the Biden regime launched a crackdown on the Chinese tech sector, especially targeting Beijing’s semiconductor industry. The mini trade war spilled over into medical equipment. Between late September 2024 and Jan. 1, 2025, the administration imposed “Section 301” duties of 25% on face masks and respirators, 50% on surgical gloves, and 100% on syringes and needles. “The Chinese saw what was going to happen a couple of years before and started building plants in Vietnam,” says Einhorn. “We shifted some of our production to Vietnam. But the companies were backed by companies in China.” Many items including paper products and testing equipment that Dealmed mainly ferried from China, didn’t get pounded by the 301 levies. But even for syringes and other targeted items, Einhorn found that after tacking on the tariffs, he could sell the Chinese products at the same or lower prices than the same goods made anywhere else. “Despite the 301 tariffs, we mainly stayed with China,” he says.
The 301 blow, however, proved relatively mild versus the Trump fusillade to come. Trump started at a 10% levy in February that he raised to 25% in early March, before uncorking the notorious 135% Liberation Day “reciprocal” load on April 9. That fresh heap got stacked atop the 301 duties, bringing the all-in for needles and syringes, for instance, to 235%. The Jenga-like tower of tariffs caused a serious but little reported problem for importers such as Dealmed. “This created a difficult dynamic for managing cash flow,” explains Einhorn. “When a container of syringes hit a U.S. port, I would have to pay the 235% tariff before the product hit the shelves. I would have been laying out enormous amounts of money in advance for a product that wouldn’t be sold for two or three weeks.”
To avoid the huge upfront cash payments, Einhorn severely slowed shipments from China. But he was also wagering that the initial, virtually embargo-sized levies wouldn’t last. His Chinese suppliers designed an elegant solution. “They were very savvy,” recalls Einhorn. “They said, ‘We’ll cut your prices by 10%. We’ll make the product for you, and store it for you, at no charge for three to four months.’ In effect, we were both hedging that the Trump tariffs wouldn’t stay at anything like those triple-digit levels.” When Trump announced the 90-day suspension of the reciprocal tariffs on May 12, the rate on Dealmed’s purchases dropped, from 235% for syringes and 160% on face masks to 130% and 55%, respectively. Einhorn then took delivery, enabling him to sidestep the cash-drain problem, and offer far lower prices to his customers.
For Einhorn, the Trump 30% extra tariffs are far from a deal killer for buying Chinese. “I’ll move some products away, but we’ll stay with China for now as the main supplier,” he declares. Even the total 130% duties aren’t stopping him from successfully selling syringes and needles to U.S. customers. All told, Dealmed’s not planning to backtrack on all the production it restored to China, as its manufacturing improved so notably following the pandemic. The overwhelming majority of gloves and paper contract-manufacturing that went from China to Malaysia, and to the U.S. and Canada, respectively, is now back in the nation where Dealmed debuted its outsourcing model. He finds that Vietnam and other Asian rivals to China not only generally charge somewhat higher prices, but lack China’s quality, range of products, and giant infrastructure that fosters superior economies of scale and guarantees that its manufacturers can meet sudden surges in orders by delivering huge quantities.
Einhorn avows that his company is getting over 40% of its revenues from products made in China, roughly back to the summit of 2018—and a much bigger number in dollar terms, since Dealmed has grown so much in those seven years.
Judging from what he’s seen firsthand, the Trump trade war won’t succeed at its objective. “It’s a misconception that the U.S. can extract ‘burden sharing’ by getting Chinese and other foreign companies to absorb the tariffs,” he says. He sees every day that hospitals and clinics, not the Chinese exporters, are paying the tariffs and passing the costs along to insurers, and hence the individuals and companies that pay the premiums.
He doesn’t have all the answers. “I’d rather do business in the U.S.,” he says. But he notes that issues ranging from extremely high workers’ compensation costs to mandated purchases of high-cost electricity handicap U.S. players on the world stage. “There have to be a series of incentives to lower costs for U.S. manufacturers,” he says. “Unless we can match the quality and pricing of China, my customers won’t pay more because it’s made in the U.S.” For now, he says, it comes down to this: “Cutting out China is not an option.”
This story was originally featured on Fortune.com
