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How serious will the USA tariff increase affect the vape export in China?

On May 9, 2019, the U.S. government announced that, since May 10, 2019, the tariff rate on goods imported from China with a list of $200 billion increased from 10% to 25%.

Source: Trump just raised tariffs on Chinese goods. Here’s what that means

The above measures led to the escalation of Sino-US economic and trade frictions, violated the consensus of the two sides on resolving trade differences through consultation, harmed the interests of both sides, and did not meet the general expectations of the international community. In addition, tariff levy has been opposed by local technology industry and traders, because the list published earlier by the US side covers not only smart watches of Apple, Fitbit and other brands, Bluetooth devices and other 3C products, but also major Sino-US foreign trade items such as bicycle safety helmet, baby car seat and electronic cigarette.

The tariff rates of the vape industry after the levy are as follows:

The tariff rates of the vape industry after the levy are as follows:

Previously, the United States imposed tariffs on Chinese goods worth about $200 billion on September 24, including electronic cigarettes.

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 where almost all products such as electronic cigarettes are made in China, no American manufacturer can solve the current problems faced by the electronic cigarette industry.

Because there are no large number of electronic cigarette manufacturers in the United States, this tax will only lead to the inability of American importers to survive, the reduction of products purchased by consumers or waiting to be purchased, the dilemma of retailers, the reduction of products purchased by distributors and importers from Chinese enterprises, the reduction of R&D budgets and layoffs by factories in Shenzhen, and ultimately only a large group of American electronic cigarette users will be punished.

It is difficult to localize vape industry in the United States

The United States does not manufacture large-scale vape devices except vape juice.

As for why the United States does not transfer electronic cigarette technology from China? This issue has been discussed in previous articles. From a technical point of view, China currently has the largest number of electronic cigarette manufacturers. Their R&D capabilities and product quality are at a high level. At present, you can see some famous manufacturers’ vape devices, such as Silmo, SMOK, Joyetech and Eleaf, which not only come from China, but also produce vape for over 10 years.

China not only has abundant resources and technology, but also includes professional product designers and engineers. However, this manufacturing experience and development base is impossible for the United States to achieve self-sufficiency in a short time, let alone the related parts supply chain and processing chain.

From the point of production cost, if the manufacturing industry is set up in the United States, it will concentrate on the local market at most, because the labor cost in the United States is extremely high. If it is processed and sold to other markets, it will not meet the economic benefits, and the cost of raw materials acquisition is much higher than that in China, no enterprise will be willing to invest in the electronic cigarette manufacturing industry at this time point.

It is difficult to localize vape industry in the United States

The impact on the vape industry is unpredictable

If tariffs keeps there, the prices of lithium-ion batteries, e liquids, cartridges and other products will increase. For American smokers, using electronic cigarettes is a heathy thing as well as a cost-saving thing. However, driven by the increasing use costs brought by tariffs to consumers and the severe policies of FDA, it is likely to force American electronic cigarette users to start using traditional cigarettes again.

“This is undoubtedly the most uncomfortable situation of the American Electronic Tobacco Association, and the double pressure is likely to lead to a recession in the already reduced smoking rate.”

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

“The impact of tariffs varies from product to product, especially for low-profit products. Faced with the impact of a large and comprehensive tax rise, we have to survive. Because the cost of products and retail prices are already very tight, retail prices will rise by another 15-20%. For higher-profit products, 25% tariffs may only increase retail prices by 8-10%.”

Although the rise in US tariffs is good in the long run, it forces Chinese enterprises to upgrade their industries, focusing on the process of brand and intellectual property rights. However, it is worth noting that the electronic cigarette industry may become a victim of tariff competition. After all, tariffs will lead to higher retail prices and lower consumers’willingness to buy, followed by lower sales, from which distributors and wholesalers struggle to reduce trade orders to Chinese factories, and finally even USA domestic e-cigarette manufacturers are harmed.

Therefore, if enterprises want to survive from this disaster, in addition to gradually shifting the focus of the market to other developing e-cigarette market, they may also have to develop towards standardization, regulation and specialization. Only then can Chinese vape manufacturers have the opportunity to minimize the risk of the whole cross-border business.

VAPE HK

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