Lately, it seems that no industry is immune to the recently imposed tariffs that affect approximately $34 billion in products imported from China. The vaping industry is no exception. One of the latest and most surprising additions to the list of affected products that could be impacted by the 25% tariffs is e-cigarettes. With roughly 95% of e-cigarettes made in China, the tariffs could impact millions of dollars worth of vaping devices that are imported from China. These tariffs could drastically impact the entire vaping industry.
"Imports of Chinese-made vaping devices to the tune of $300 million a year will be hit, as will $16 million of electronics effects units, used by rock bands to distort guitar sounds. Under the OECD product categories, both of these fall into a $1.1 billion U.S. category of miscellaneous electrical equipment proposed for a second, $16 billion round of tariffs."
- David Lawder and Howard Schneider, Reuters Business News
When most people think of the tariffs, they envision heavy machinery, automobiles, and industrial equipment. The news of the proposed tariffs on e-cigarettes was, therefore, a surprise for many people in the vapor industry. Below are three reasons why the news came as such a shock:
The majority of the tariffs focus on products from industries that benefit from the 'Made in China 2025' policy. Examples include robotics equipment, automobiles, industrial machinery, and aerospace equipment. Analysts posit that e-cigarettes must fall into the category of "miscellaneous electrical equipment", or products that will be targeted with the next round of tariffs. This seems counterintuitive given the simplicity and purpose of e-cigarettes.
"The Chinese invented the electronic cigarette, and they are perhaps the world's leading manufacturer of consumer electronics. For those reasons, they have an enormous head start on the United States in the e-cigarette industry."
Because the Chinese were the first to begin manufacturing the electronic cigarette, it is not a surprise that they account for well over 90% of all e-cigarettes on the market. The United States is not heavily competing for dominance in the e-cigarette manufacturing industry and the imposition of the tariffs would not have an immediate impact on the U.S. job market.
As the FDA imposes stricter regulations on the e-cigarette industry, manufacturers seeking to open plants in the United States must comply with more stringent standards than ever. Maintaining compliance with these standards is time-consuming and can be costly, especially when combined with the imposition of the tariffs.
If enforced, the proposed tariffs on e-cigarettes and other vaping devices will significantly impact a wide range of people and businesses. Below is a look at some of the key individuals, businesses, and industries that will be impacted if the tariffs are imposed.
"The products I imported two weeks ago are already costing me more than they did a month ago. The margins on these [vape] products for businesses here in the U.S. are between 10 to 15 percent. If, on top of that, we have to pay a 25 percent extra tariff, there's not going to be much left."
- Arnaud Dumas de Rauly, Co-founder of the Blinc Group
Local distributors in the United States play a key role in ensuring that local businesses and e-commerce stores have sufficient stock to meet customer demands. With the imposition of the tariffs, distributors will face an unpleasant dilemma: They must either contend with significantly lower profit margins or enforce a price increase to their loyal customers.
After distributors, store owners will be the next tier of individuals who will feel the financial squeeze brought on by the tariffs. Many store proprietors and e-commerce owners will be forced to cover increases in the cost of e-cigarettes, which could result in slimmer profit margins and lower income for employees and everyone affiliated with the business.
Ultimately, consumers will pay the ultimate price if the tariffs are enforced. The trickle-down effects of the tariffs will result in higher prices for consumers as distributors and stores attempt to compensate for higher costs and shrinking profit margins.
When most people think about the individuals and businesses that are negatively impacted by the tariffs, they do not consider the many ancillary companies that serve the vaping industry. Here are some examples of ancillary companies that will feel the trickle-down effects of the tariffs:
"The intent of the tariffs is to help American industry. But the vape industry wouldn't receive any benefit at all from the tariffs, and could be badly hurt. Customers will delay purchases, waiting out the tariffs, and retail businesses will do the same with their wholesale purchases. Wholesalers will reduce their orders from Chinese manufacturers, who will be forced to slow production, lay off workers, and reduce R&D budgets."
- Jim McDonald, Vaping360
While the intent of the proposed tariffs is to help U.S. businesses and citizens, the proposed tariffs on e-cigarette products will likely yield many negative consequences. Three of the most significant effects are as follows:
Vaping stores have been a welcome addition to struggling malls and shopping centers. However, the imposition of tariffs will slash profit margins and could impact store owners' ability to cover the cost of rent and space. When combined with reduced store traffic that could result due to higher prices, the tariffs could eventually cause some stores to relocate or go out of business.
As most people in the vaping industry are aware, replacing cigarette smoking with vaping reduces exposure to harmful chemicals. But higher prices on e-cigarettes could influence budget-conscious vapers to return to their old habit of smoking tobacco cigarettes, thereby negating any progress made toward reducing or eliminating nicotine.
"When consumers are faced with extremely high legal prices for their products, there is a possibility that they will look for alternative and lower-priced options, and that creates an opportunity for illicit actors."
- Morgan Fox, Spokesperson for National Cannabis Industry Association
The potential for black market devices could skyrocket if the tariffs are imposed. Results of a survey of 10,000 members respondents on an e-cigarette forum indicate that 79% of would turn to the black market if they could not access e-cigarettes. And while the proposed tariffs would not equate to a ban on the devices, a price increase could yield the same effect. This could ultimately result in the circulation of unregulated and potentially harmful vaping devices.
The potential tariffs have emerged just as the vapor industry is prospering. The negative effects above could cause a major slowdown in the entire industry and even cause vapers to return to smoking tobacco cigarettes. Many people mistakenly may feel like there is nothing they can do to help the vapor industry. However, there are several measures you can take to support the e-cigarette industry. By taking the following steps, you can play an important role in lending support to the vaping industry:
Of all of the steps listed above, one of the most important is to stay abreast of the latest events in the vapor industry. The surest way to accomplish this is to seek the guidance of an industry expert. Since 2011, Velvet Cloud has been a leader in the vaping industry. Offering the best VG e-liquid in the industry, Velvet Cloud is dedicated to serving the needs of the vaping industry.
Velvet Cloud brews their extensive range of premium e-liquid flavors in an ISO-7 certified laboratory to ensure that vapers are able to enjoy the highest quality e-liquid. Our e-cigarette experts stay abreast of the latest industry events and can respond to any questions that you may have regarding the e-cigarette industry. We invite you to contact us today to learn more about the latest events in the vapor industry. We look forward to hearing from you!