Trade War Escalation: Will the Vape Industry Be Affected?

The State Council Tariff Commission has decided that starting from 0:00 on June 1, 2019, the tariff rates on some items in the $60 billion list of U.S. goods that have already been subject to additional tariffs will be increased to 25%, 20%, or 10%. The items that were previously subject to a 5% tariff will continue to be subject to a 5% tariff.

On May 9, 2019, the U.S. government announced that starting from May 10, 2019, the tariff rate on the $200 billion list of goods imported from China would be increased from 10% to 25%. The above measures by the U.S. have led to an escalation of economic and trade friction between China and the U.S., violating the consensus reached by both sides to resolve trade disputes through consultation, harming the interests of both parties, and not meeting the expectations of the international community.

The tariff rates on the e-cigarette industry after the increase are as follows:
 
Tariffs are import taxes levied on products from another country, aimed at creating a more favorable economic environment for U.S.-made products. However, since the U.S. does not have a large number of e-cigarette product manufacturers, this tax will only punish U.S. importers, wholesalers, retailers, and ultimately harm American e-cigarette users.
The purpose of the tariffs is to give U.S.-made e-cigarette products a competitive advantage domestically. But without American-made e-cigarette products, everyone will suffer: consumers will have fewer products to buy or will have to wait to purchase, retailers will struggle, and distributors and importers will reduce their purchases from Chinese companies, leading to cuts in R&D budgets and layoffs in factories in Shenzhen. This is a war with no winners.

Difficulties in "localizing" e-cigarettes in the U.S.

Apart from e-liquids, the U.S. does not have large-scale manufacturing of e-cigarette devices.

As for why the U.S. does not transfer e-cigarette technology from China, this topic has been discussed in previous articles. From a technical perspective, China currently has the most e-cigarette manufacturers, and its R&D capabilities and product quality are at a high level. Some well-known manufacturers, such as SMOK, JOYETECH, and Eleaf, have been producing e-cigarettes for ten years or more.

China not only has abundant resources and technology but also includes professional product designers and engineers. However, this manufacturing experience and development foundation cannot be achieved by the U.S. in the short term, not to mention the related supply chain and processing chain for components.

From a production cost perspective, if manufacturing is established in the U.S., it would only focus on the local market, as labor costs are high in the U.S. If processed and sold to other markets, it would not be economically viable, and the cost of raw materials is also much higher than in China. No company would be willing to invest in the e-cigarette manufacturing industry at this time.
 
Unpredictable impact on the industry

If tariffs continue, the prices of lithium-ion batteries, e-liquids, pods, and other products will increase. For American smokers, using e-cigarettes was originally a cost-effective and pleasant experience, but with tariffs increasing the cost of use and the FDA's stringent policies, it may force American e-cigarette users to revert to traditional cigarettes.
"This is undoubtedly the situation that the American E-Cigarette Association least wants to see; the dual pressure may lead to a resurgence in smoking rates that have already declined."

Geoff Habicht, president and founder of Smoking Vapor, stated:

"The impact of tariffs varies by product, especially for those with lower profit margins. Facing this rising and overall upward pressure, we have to hold on, as product costs and retail prices are already very tight, so retail prices will rise by another 15-20%. For products with higher profit margins, a 25% tariff may only increase retail prices by 8-10%."

Although the increase in U.S. tariffs may be beneficial in the long run, forcing Chinese companies to upgrade their industries and focus on branding and intellectual property, it is worth noting that the e-cigarette industry may become a casualty of tariff competition. After all, tariffs will lead to higher retail prices, reducing consumers' willingness to purchase, which will subsequently lead to a decline in sales, and distributors and wholesalers will struggle, resulting in reduced trade orders from Chinese factories, ultimately affecting domestic e-cigarette manufacturers as well.

Therefore, if companies want to survive, they must gradually shift their market focus to other developing e-cigarette markets and continue to develop in a standardized, regulated, and professional manner to minimize the risks of cross-border business.