35% of U.S. E-Cigarette Imports Come From Indonesia — Is China’s Supply Chain Dominance Being Challe

In the first half of 2023, the import share of e-cigarettes in the U.S. from Indonesia exceeded 35%, making Indonesia the second-largest e-cigarette exporter after China. This article mainly explores the current state of Indonesia's e-cigarette supply chain and the reasons for its rapid rise.

For a long time, Shenzhen, China, has been regarded as the global center for the e-cigarette supply chain and manufacturing, with over 90% of e-cigarettes produced here. This view is widely recognized in the global e-cigarette industry, and Shenzhen has thus been dubbed the "City of Mist."  

However, according to data released by the U.S. Trade Commission in June 2023, the situation seems to have changed. The data shows that in the first half of 2023, only 63.7% of e-cigarettes imported into the U.S. came from China, while those from Indonesia accounted for over 35%. This means that Indonesia has surpassed other countries to become the second-largest e-cigarette exporter after China.  

Data Source: U.S. Trade Commission (Chart by Two Supremes)  

According to the U.S. Trade Commission data, Two Supremes compared the e-cigarette export data from China and Indonesia to the U.S. in the first half of 2023. The data shows that e-cigarettes exported from Indonesia to the U.S. have consistently held a significant share. Particularly in March 2023, the share of e-cigarettes imported from Indonesia reached as high as 48%, while China was only 52%.

Data Source: U.S. Trade Commission (Chart by Two Supremes)  

The above data indicates that Indonesia's market share in the e-cigarette market is gradually expanding, making it China's biggest competitor. So, what is the current state of Indonesia's e-cigarette manufacturing industry? What are the reasons for its rapid rise?

China's E-Cigarette Manufacturing Industry is Overflowing to Indonesia 

Staff from Two Supremes purchased a product from the so-called largest e-cigarette brand in the U.S., VUSE, and found that the packaging stated "Made in Indonesia." This indicates that VUSE is collaborating with Indonesian factories. According to a report by Nielsen in May, VUSE holds a 42.3% market share in the U.S.  

Staff from Two Supremes purchased VUSE products in the U.S. market, and the packaging indicated "Made in Indonesia" | Image Source: Two Supremes  

Additionally, in some news reports related to e-cigarette manufacturers, Two Supremes also discovered several situations.  

• In July 2022, Smoore, one of the world's largest e-cigarette manufacturers, established its 14th factory in Malang, Indonesia. The factory covers an area of about 6 hectares and has 16 production lines, each capable of producing 7,200 e-cigarette pods per hour.

• In August 2022, Jingjia Co., Ltd. (002191.SZ) revealed on its investor platform that it is building a production base in Indonesia to provide integrated services for e-cigarettes.

• The e-cigarette accessory supplier Zhijing Precision also stated that its factory in Indonesia began production in 2022.

• In January 2023, international tobacco giant Philip Morris International (PMI) officially completed a factory in Indonesia with an investment of $180 million, specifically for the production of IQOS HEETS pods.

• On September 11, 2023, South Korea's largest tobacco company (KT&G) announced plans to build a new factory in East Java, Indonesia, which is expected to start operations in 2026.  #p#分页标题#e#

The move by e-cigarette manufacturers to build factories in Indonesia indicates that Indonesia, as an emerging center for global e-cigarette production and manufacturing, is gaining favor from international companies.  

What Advantages Does Indonesia Have in Terms of Market, Costs, and Tariffs? 

As the largest economy in ASEAN, Indonesia's GDP surpassed $1.3 trillion in 2022, ranking 16th in the world, and is considered one of the most important and dynamic markets in Southeast Asia.  

Against this backdrop, Indonesia's e-cigarette industry has unlimited development potential. Garindra Kartasasmita, Secretary-General of the APVI (Indonesian E-Cigarette Association), stated in a public speech at the 2022 IECIE exhibition in Jakarta that Indonesia's e-cigarette market has been growing at an annual rate of about 50% since 2013, with a 7% decline in 2021 due to the pandemic. A rebound is expected in 2022, with a growth of 50%.  

As a labor-intensive market, Indonesia has relatively low labor and land costs, which is a well-known advantage. However, the main advantage of Indonesia's e-cigarette exports to the U.S. lies in the U.S. tariff policy.  

Looking back at April 2018, the U.S. released a list of goods subject to additional tariffs on China, with the first list including goods worth $34 billion, among which were e-cigarette products. This move caused e-cigarette tariffs to rise from 6.5% to 31.5%.  

In contrast, with Indonesia's restoration of Most-Favored-Nation treatment in 2020, e-cigarette kits exported from Indonesia to the U.S. only need to pay a 2.6% import tariff. This preferential tax rate undoubtedly further promotes the export of Indonesia's e-cigarette industry and enhances its competitiveness in the U.S. market.  

In June 2023, the proportion of e-cigarettes imported from China and Indonesia to the U.S. showed a significant opposite trend, and the "gap" between China and Indonesia seems to be widening. Although China remains the main source of e-cigarette imports to the U.S., with Indonesia's strong rise, will China be able to maintain such an advantage in the future?