U.S. Tariff Hike Deals Heavy Blow to the Vaping Industry

On May 9, 2019, the U.S. government announced that starting from May 10, 2019, the additional tariff rate on US$200 billion in list goods imported from China will be increased from 10% to 25%.

The above-mentioned measures by the United States have escalated economic and trade frictions between China and the United States, violated the consensus between China and the United States on resolving trade differences through consultations, harmed the interests of both sides, and did not meet the general expectations of the international community. In addition, the imposition of tariffs has been opposed by local technology companies and traders, because the list announced by the United States earlier not only covers smart watches, Bluetooth devices and other 3C products from Apple, Fitbit and other brands, but also includes major Sino-US foreign trade items such as bicycle helmets, baby car seats and e-cigarettes.
 

Prior to this, the United States imposed tariffs on approximately US$200 billion worth of China goods on September 24 last year, including e-cigarettes at that time.

The purpose of tariffs is to tax products imported from other countries, increase the competitiveness of American products, and create domestic economic value. But in an industry such as e-cigarettes, where almost all products are made in China, no American manufacturer can solve the problems currently facing the e-cigarette industry.

Since there are no large number of e-cigarette manufacturers in the United States, this tax will only lead to the inability of U.S. importers to survive, consumers to buy fewer products or wait to buy, retailers to get into trouble, distributors and importers to buy fewer products from China enterprises, Shenzhen factories to cut R & D budgets and layoffs, etc., and ultimately punish only U.S. e-cigarette players.
 

Except for tobacco oil, there is no manufacturer in the United States that produces e-cigarette equipment on a large scale.

As for why did the United States not transfer e-cigarette technology from China? This issue has actually been discussed in previous articles. From a technical perspective, China currently has the largest number of e-cigarette manufacturers, and its R & D capabilities and product quality have reached a high level. Currently, some famous manufacturers can be seen all over the world. Equipment, such as SMOK, Joyetech and Eleaf, are not only from China, but have been producing e-cigarettes for ten years or more.

In addition to having very sufficient resources and technology, China also includes professional product designers and engineers. However, with this manufacturing experience and development foundation, it is impossible for the United States to achieve self-sufficiency in the short term, let alone the related parts supply chain and processing chain.

From the perspective of production costs, if the manufacturing industry is established in the United States, it will at most focus on the local market because labor costs in the United States are high. If it is processed and sold to other markets, it is not economically effective. Moreover, the cost of obtaining raw materials is much more expensive than in China. No company will be willing to invest in e-cigarette manufacturing at this point in time.
 

If tariffs continue, the prices of lithium-ion batteries, tobacco oil, cigarette bombs and other products will increase. For American smokers, using e-cigarettes is originally a money-saving and beautiful thing. However, as tariffs bring to consumers, driven by the increased cost of use and the FDA's stringent policies, it is likely to force e-cigarette users in the United States to start using traditional cigarettes again.

“This is undoubtedly the situation that the American Electronic Cigarette Association is most unhappy with. The double pressure is likely to cause the already reduced smoking rate to rise again.

Geoff Habicht, president and founder of Smoking Vapor, once said:

“The impact of tariffs varies according to products, especially products with lower profits. Faced with this large and all-round increase, we have to persevere. Because product costs and retail prices are already very tight, retail prices will increase by another 15-20%. As for products with higher profits, a 25% tariff may only increase retail prices by 8-10%. rdquo;

Although the rise in U.S. tariffs is good in the long run, it will force China companies to upgrade their industries and focus on the process of brand and intellectual property rights. But it is worth noting that the e-cigarette industry may become a victim of tariff competition. After all, tariffs will lead to an increase in retail prices, making users reduce their willingness to buy, and the ensuing decline in sales will be a decline. Dealers and wholesalers will struggle to reduce trade orders to China factories. Finally, even domestic e-cigarette manufacturers have also been affected.

Therefore, if enterprises want to retreat, in addition to gradually shifting the market focus to other developing e-cigarette markets, they may have to continue to develop towards standardization, standardization and specialization, so as to have the opportunity to minimize the risk of the entire cross-border business.