Will e-cigarettes become part of the trade war?
July 6th saw the start of a global trade war.
The government has slapped a whopping 25% tariff on thousands of products coming in from China.
Despite the administration stating this list won’t include goods commonly purchased by American consumers, this isn’t exactly true. 1% are considered consumer products and nestled within that 1% are all vaping hardware products, made in China.
The tariff on vape gear hasn’t hit yet, but it is on its way.
All e- cig hardware, including batteries are on the list.
This is surprising, as the USA do not make e cigs, there is no e cig manufacture here, for what at first glance seems to be a ‘tit for tat’ trade war. July 24th may see some changes to this, as there will be a public hearing regarding the items on the list, but until then, let’s fill you in on a few more facts.
The motivation behind the trade war, as discussed here in the NY Times, is said to be unfair trade practices and intellectual property theft. The Chinese are notorious for seeing someone else’s idea and then ripping it off. They don’t care about copyright, patents; none of it. They see it, copy it and then sell it on. This is wrong on many levels, and the government have deliberately chosen to target products, from China, that they say are harming US industries. Currently firms that invest in China and have manufacturing operations in China must, (as a quid pro quo?) hand over valuable technical information to the Chinese. Yet, as we have said, there is no e cigarette manufacturer in the US. At time of writing there is no manufacturer of batteries for vaping in the US. The Chinese invented the modern e-cig, they have been the ones to innovate, do an incredible amount of R&D and are copying no one over here.
Intellectual property theft and unfair practice, wherever it is, is evidently unfair on those that produce the technical information and innovation.
Or is it?
If a manufacture is prospering from a low wages economy – think Apple, (because companies don’t re-locate overseas unless it benefits them) – are the Chinese in this instance merely asking for, (or taking) something in return? Either way, the government has imposed tariffs on China, has restricted investment in China and is reducing the amount of visa’s available for Chinese nationals.
China is of course retaliating.
They have imposed $34 billion of tariffs on goods from the USA. They feel their economy is strong enough to withstand the tariffs, and one of their spokespeople has said – ‘pressure generates motivation’. He didn’t mean the motivation to roll over and acquiesce.
Will the tariffs do the job they are designed to do?
Some car parts that were sourced from China are still cheaper to source from Germany, than they are from here. As a manufacturer, would you pay more and buy local, or would you go for the cheaper option?
Upsetting the balance of trade is a risky business, and we are starting to see countries move away from the USA and continue to do their own thing. Canada is forging stronger ties with the EU, with China, because of the trade war, is said to becoming more powerful in Asia.
Is there a way round this?
One option, that is entirely illegal, is for China to re-route goods through Asia. They already do this with honey (termed Honey Laundering), hence custom and exercise having to send samples of honey to labs to find out the country of origin. Chinese honey is banned due to contamination with toxins, but you can bet that some of it still gets into the US.
But why vaping goods?
Was it a case of we must hit them where it hurts, and vaping goods will hurt the Chinese? They are after all the global manufacturer of them. Was it also a case of well, we want to tightly regulate vaping, adding an import tariff will help with that?
If the prices do go up as a result, we know what will happen. In places where 40% vaping taxes have been imposed, vaping has all but died out. Add another 25% import tax to an existing vape 40% and you don’t need a math degree to understand what happens next. If people don’t buy products, markets shrink, and we will be left with a few players, (Big T and Big P?) or non-at all.
Will the industry start to manufacture vaping goods here?
That’s an unknown. China has a vast population and the wages are low. They have no unions fighting for workers’ rights. We’ve all seen the horrific documentaries where staff are 10 to a room, working 12 hour shifts with barely a toilet break during that time, and remember the suicide nets? Labor laws won’t permit cheap labor here, so the cost of setting up a company and employing staff may rule that out.
At the start of the post we mentioned a public hearing on July 24th.
This public hearing is designed so that:
‘The Trade Representative has further determined to establish a process by which U.S. stakeholders may request that particular products classified within a covered tariff subheading in Annex A be excluded from these additional duties. Further, the Office of the U.S. Trade Representative (USTR) is seeking public comment and will hold a public hearing regarding a proposed additional action in this investigation. The proposed additional action is the imposition of an ad valorem duty of 25 percent on products of China classified in the HTSUS subheadings set out in Annex C of this notice.’
Basically, tell us why you don’t want your goods included!
The Federal Register is where – yes you guessed it! You can register your concerns that a product that has no equivalent manufacturing process here in the USA has been included in the trade war. There is no benefit to the US economy to have them in there, no one is losing out on intellectual property rights, but there is a huge detriment to those that have switched away from tobacco.
Please do register your concern!
Meanwhile, we must wonder – how an earth did e-cigarettes end up on the list, and why?