Vaping industry decries Trump's tariffs targeting e-cigarettes
By Mark Niquette Bloomberg Matt Townsend
Fri., July 20, 2018
COLUMBUS, Ohio—Bryan Robbins smoked for 35 years before vaping helped him quit and prompted him to ditch driving trucks for selling e-cigarettes, first at flea markets and then at his own retail shops in Mississippi.
The 52-year-old is a Donald Trump supporter who agrees with the president's efforts to crack down on China's trade practices, but it's hitting close to home. The next round of proposed duties — 25 per cent on $16-billion worth of Chinese imports that could go into effect in a month — includes vaping devices. Most e-cigarettes are made in China, leaving Robbins and his peers without an alternative.
The next round of proposed U.S. duties — 25 per cent on $16-billion worth of Chinese imports that could go into effect in a month — includes vaping devices. (DIEDRA LAIRD / Tribune News Service)
"It might be good for the trade deficit in the long run, but how many stores is it going to put out of business in the short term?" Robbins said.
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Robbins, whose e-cigarette devices sell for $25 to $130, says the tariffs will mean higher prices that will depress sales — hampering the growth of a nascent market. He and other advocates are pressing the Office of the U.S. Trade Representative to spare the devices on grounds they will cost American jobs, won't change China's trade behaviour and could push more people to go back to smoking cigarettes.
The potential tariffs would hit the surging industry as it faces efforts by the U.S. Food and Drug Administration to limit sales to minors and regulate vaping flavours. A slowdown would also hurt mall and shopping centres, where vape shops have been a bright spot by filling empty spaces from store closings and retail bankruptcies.
"Yes, it will hurt consumers, yes, it will hurt the industry," said Tony Abboud, executive director of the Vapor Technology Association, a trade group representing more than 600 manufacturers, wholesalers, distributors and retail shops. "It is a dramatic impact, especially for anybody who's low or middle income."
The tariffs would also affect device makers like Juul Labs Inc., by far the hottest brand. Juul recently raised $650 million out of a funding round expected to reach $1.2 billion — a deal set to value the business at about $15 billion, people familiar with the matter have said.
Even though Juul and others make more money from selling the pods of liquids that go into the vaporizers — with a majority of the pods manufactured in the U.S. — than from the devices themselves, higher levies would still hurt.
Juul's vaporizers, which cost about $35, are made in Shenzhen, China. The company declined to comment, and referred questions to the Vapor Technology Association.
Tobacco giants such as Reynolds American Inc., Imperial Brands Plc and Altria Group also sell vaping products. Imperial said it is evaluating how to minimize the effect of the proposed tariffs. Reynolds declined to comment, and Altria didn't respond to requests for comment.
Adding tariffs on e-cigarette devices won't meet the administration's goal of addressing allegations of Chinese intellectual property theft, vaping advocates said, nor will it boost U.S. jobs. There's no realistic prospects for anyone to open a factory in the U.S. until a 2022 deadline by the FDA clarifies which products are approved for sale in the country, they say.
Small store owners like Robbins are set to be among the latest victims of Trump's trade war with its largest trading partner, and the vaping industry is joining retailers, manufacturers and other groups in opposing the duties as a tax on consumers. On July 6, the Trump administration enacted 25 per cent tariffs on $34 billion of Chinese imports. China retaliated, and four days later the U.S. proposed 10 per cent duties on $200 billion in additional goods.
Vaping advocates have asked to testify at a public hearing July 24 and 25 in Washington on the next round of 25 per cent tariffs, which includes their products. Robbins is among more than two dozen shop owners, customers and advocates from 10 states who submitted online comments opposing the proposal.
While the U.S. produces e-liquid for vaping, most of the devices, parts and components sold in the U.S. are manufactured in China, according to Gregory Conley, president of the American Vaping Association, a non-profit advocacy group. Ninety-one per cent of the $342.3 million customs value of U.S. e-cigarette imports came from China in 2016, according to a U.S. Government Accountability Office report.
The sector had really just started to take off. Sales in the U.S. of e-cigarette devices increased 68 per cent to $1.7 billion in the 12 months through June, according to data from IRI, after rising 32 per cent in 2017.
Including e-liquid pods and batteries, industry sales rose 15 per cent to $5.4 billion last year, according to BIS Research. Convenience and grocery stores made up the biggest chunk of that with $1.7 billion, followed by vape shops at $1.1 billion.
Industry advocates say the profit margin on the products is thin, and a 25 per cent tariff would get passed along to consumers and diminish purchases at the estimated 10,000 U.S. vape shops. The duties also could hurt public health because higher costs for e-cigarettes would discourage switching from smoking, they say.
James Jarvis, part of an ownership group with 21 vaping stores in Ohio and president of the state's Vapor Trade Association, said at least one of his shops would close for those reasons.
"The sales just aren't there, and if I have to take a price increase in an area that's already struggling economically, I won't have business left," Jarvis said.
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