The digital health sector kicked off 2025 with surprising momentum—M&A activity surged 21% year-over-year, and global equity funding inched up 2% to $6.3 billion. But storm clouds are gathering.
The U.S. has rolled out a blanket 10% tariff on imports, with even steeper rates like 125% on Chinese goods, and potential semiconductor tariffs loom.
These moves could force a major recalibration across digital health, where supply chains and hardware costs are already under scrutiny.
In this article, we analyse key insights from Galen Growth’s report, ‘The Potential Impact of New Trade Tariffs and Market Volatility on Digital Health,‘ to assess sector-wide implications.
Trade tensions escalate: What it means for digital health
The ripple effects are already being felt—key trade partners are now weighing retaliatory tariffs, setting the stage for a potential protracted trade war. For digital health companies, this is a direct threat to growth and innovation.
Digital health hardware is about to get more expensive
The math is simple but troubling:
Rising tariffs + a weaker dollar + semiconductor trade tensions = pricier health tech.
Wearables, sensors, and diagnostic devices—the backbone of digital health innovation—are squarely in the crosshairs.
Breaking down the domino effect:
- Startups and scale-ups will feel the pinch most, as their lean operations rely on global supply chains with razor-thin margins.
- Semiconductor tariffs could be the knockout blow. These chips power everything from smart glucose monitors to AI diagnostics. No escaping this cost hike.
- Patients and providers may foot the bill, slowing adoption just as digital health was gaining real traction in clinics and homes.
Impact on high-end medical technology
The US dominates high-end medical exports, but China’s reliance on these imports makes it vulnerable in this trade standoff. If China retaliates with restrictions, the ripple effects could be serious says Galen Growth’s report:
- Delayed diagnoses as access to US-made imaging tech (CT/MRI scanners) tightens
- Treatment bottlenecks for Chinese patients needing specialised therapies
- A lose-lose scenario where trade barriers outpace patient needs
This is about who pays the price when medical innovation gets caught in a geopolitical crossfire.
Innovation and global collaboration bottlenecks
Digital health’s breakthrough potential has always depended on global teamwork—shared research, worldwide talent, and interconnected supply chains. However, rising tariffs and geopolitical friction are putting that collaboration at risk.
Here is what is at stake:
- Startups and scale-ups can’t easily absorb these new costs, potentially stalling critical R&D
- From AI diagnostics to wearable tech, next-gen solutions may slow to a trickle
- When borders become barriers, everyone loses access to the best ideas and talent
The irony:
Just as digital health promises to democratise care, trade wars may shrink its potential. When collaboration gets costly, innovation pays the price.
IPO market: A narrowing window
The public markets are already giving digital health a cold shoulder, and new trade tensions might slam the window shut. Consider these insights from Galen Growth’s latest report:
- Just 1 U.S. digital health IPO in 2025 (Beta Bionics) vs. 3 this time last year
- As investor confidence wavers, and valuations are in flux, many digital health firms are hitting pause on IPO plans
- Delayed exits could starve growth-stage companies of crucial scaling capital
With IPOs drying up, growth-stage investors may pull back, too, depriving promising ventures of the fuel they need to scale. The sector’s momentum could stall just when it needs to accelerate.
Investor sentiment: Defensive and domestic
Galen Growth’s report highlights how the mood is shifting fast in digital health funding circles. With trade wars brewing and markets wobbling, money is flowing where investors feel safest: closer to home.
What is happening:
- The “home bias” effect: VC/PE firms are favouring U.S. startups as global risks mount
- Global digital health funding nosedived from $3.5B (April 24) to $1.4B (April 25)
- New hurdles for founders: Expect tougher pitches, longer due diligence, and demands for early revenue proof.
The collateral damage? Cross-border innovation suffers as capital flows fragment. This defensive turn could starve promising global innovations of capital just when healthcare needs more cross-border solutions, not fewer.
Consolidation as a survival strategy
The math is getting brutal for digital health players and mergers are emerging as the smartest way to stay alive. Here is why consolidation is heating up according to Galen Growth’s report:
- 70% of 2024’s M&A deals were startups buying other startups to cut costs and combine capabilities
- Europe and other markets are building homegrown champions, potentially reducing U.S. dominance
- In this funding climate, merged entities stand a better chance at profitability and investor appeal.
The most successful players will be those who secure strategic alliances before opportunities disappear.
How the 2025 U.S. tariffs are shaking up pharma and healthcare
Furthermore, leveraging DelveInsight’s industry expertise and market intelligence, we have identified these critical insights from their latest research.
Supply chain strains for APIs and medical devices
As tariffs escalate, we are looking at:
- Dependence on Chinese APIs: Roughly 40% of the APIs used in U.S. generic drugs come from China. With new tariffs hitting up to 245%, companies are bracing for potential shortages and price hikes. Major players like Roche are already rethinking their supply chains, possibly moving production elsewhere.
- Medical devices hit hard: A 25% tariff on devices from Canada and Mexico (unless they meet strict USMCA rules) squeezes manufacturers. Boston Scientific faces $200M in extra expenses, likely passed to hospitals already struggling with tight budgets.
- The rush to diversify: Firms are scrambling to source APIs and devices from alternative markets like India and Germany. Shifting supply chains bring hurdles in quality assurance, logistics, and supplier approvals.
The bottom line
The digital health sector is facing its toughest test yet with soaring costs, tighter funding, corporate hesitancy, and an IPO market that has lost its risk appetite.
Yet where some see obstacles, others spot opportunity. The most resilient organisations will leverage three key strategies—strategic consolidation, domestic market optimisation, and targeted global expansion—to not just survive but thrive.
In what may prove to be digital health’s most demanding era since 2024, survival will favour the quick adapters, the forward-thinkers, the teams that lead when others hesitate.
-By Alkama Sohail and the AHT Team
