Sun, Jul 22, 2018 page15

• Vaping industry decries Trump’s tariffs targeting e-cigarettes

  While the US produces e-liquid, most of the devices and components for vaping sold in the country are manufactured in China, and industry advocates fear levies will hamper a nascent market

  • By Mark Niquette and Matt Townsend / Bloomberg
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  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 supporter of US President Donald Trump who agrees with the president’s efforts to crack down on China’s trade practices, but it is hitting close to home.

  The next round of proposed duties — 25 percent on US$16 billion 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.

  

  An employee exhales vapor generated by an electronic cigarette at NXNW Vapor in Sacramento, California, on June 28.

  Photo: Bloomberg

  “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.

  Robbins, whose e-cigarette devices sell for US$25 to US$130, said the tariffs would mean higher prices that would depress sales — hampering the growth of a market that is still nascent.

  He and other advocates are pressing the Office of the US Trade Representative to spare the devices on the grounds that they will cost US jobs, will not change China’s trade behavior 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 US Food and Drug Administration (FDA) to limit sales to minors and regulate vaping flavors. A slowdown would also hurt malls and shopping centers, 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. 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 US — than from the devices, higher levies would still hurt.

  Juul’s vaporizers, which cost about US$35, are made in Shenzhen, China.

  The company declined to comment, and referred questions to the association.

  Tobacco giants such as Reynolds American Inc, Imperial Brands PLC and Altria Group Inc also sell vaping products.

  Imperial said is evaluating how to minimize the effect of the proposed tariffs.

  Reynolds declined to comment and Altria did not respond to requests for comment.

  Adding tariffs on e-cigarette devices would not meet the administration’s goal of addressing allegations of Chinese intellectual property theft, vaping advocates have said, nor would it boost US jobs.

  There is no realistic prospects for anyone to open a factory in the US until a 2022 deadline by the FDA clarifies which products are approved for sale in the country, they have said.

  Small store owners like Robbins are set to be among the latest victims of Trump’s trade war with the US’ 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 percent tariffs on US$34 billion of Chinese imports. China retaliated, and four days later the US proposed 10 percent duties on US$200 billion in additional goods.

  Vaping advocates have asked to testify at a public hearing in Washington on Tuesday and Wednesday next week on the next round of 25 percent 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 US produces e-liquid for vaping, most of the devices, parts and components sold in the US are manufactured in China, said Gregory Conley, president of the American Vaping Association, a nonprofit advocacy group.

  About 91 percent of the US$342.3 million customs value of US e-cigarette imports came from China in 2016, a US Government Accountability Office report showed.

  The sector had really just started to take off. Sales in the US of e-cigarette devices increased 68 percent to US$1.7 billion in the year ended last month, after rising 32 percent last year, Industrial Research Institute data showed.

  Including e-liquid pods and batteries, industry sales last year rose 15 percent to US$5.4 billion, BIS Research said, adding that convenience and grocery stores made up the biggest chunk of that with US$1.7 billion, followed by vape shops at US$1.1 billion.

  Industry advocates have said the profit margin on the products is thin and a 25 percent tariff would get passed along to consumers and diminish purchases at the estimated 10,000 US vape shops.

  The duties could also hurt public health, because higher costs for e-cigarettes would discourage switching from smoking, they have said.

  James Jarvis, part of a group of 21 vaping store owners 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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