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Trade relations between the US and Europe have been put on a 90-day pause, marked by a tense wait as both sides assess their next moves. After US president Donald Trump announced he would suspend the introduction of new 20% tariffs on all imports for 90 days, the European Commission (EC) decided to freeze the planned countermeasures for the same period, which included 25% tariffs on US products – including tobacco – worth €21bn.
Nevertheless, this is a fragile pause in a trade war that has not yet been resolved, with both sides watching developments in the coming months that could potentially involve the alternatives sector too.
EC president Ursula von der Leyen welcomed Trump’s decision to temporarily suspend the tariffs, calling it an important step towards stabilising the global economy. She reiterated the EU’s commitment to a “zero tariff” agreement on industrial goods to ensure predictable and mutually beneficial trade conditions. Despite the suspension of some measures, a US tariff of 25% on European steel and aluminium remains in place as well as a 10% tariff on other goods.
However, the EU is keeping its countermeasures ready, which could be activated if the negotiations do not produce concrete results. Although the alternatives industry’s products are not currently in the crosshairs, it is a vulnerable sector that could be targeted if tensions persist – especially if Trump expands his strategy and the EU has to look for other industries to put pressure on.
Impact on supply chains
In the case of Philip Morris International (PMI), for example, the manufacturing supply chain for heated tobacco devices like Iqos is concentrated in Europe, and some of its electronic components, such as chips, might be made in China. The suspension of tariffs has not spared China; instead, Trump has raised tariffs to 125%, “based on the lack of respect that China has shown for world markets”. Including pre-existing duties of 55%, this brings the total tariffs on Chinese vaping products to 180%. This decision was taken after Beijing responded to Washington by increasing tariffs on imported US products from 34% to 84%.
But whether and how US tariffs on Chinese-made electronic components could impact the global supply chain for heated tobacco devices like Iqos, particularly in the EU market, is still uncertain. US tariffs on Chinese components might not only increase global production costs but also cause delays or shortages for devices destined for the EU, pushing companies to invest more in Europe to compensate for difficulties in the US. A spokesperson for PMI, when contacted by TobaccoIntelligence, declined to comment and said the company was “carefully analysing the situation”.
As for nicotine pouches, Zyn has less to worry about because its products are manufactured in the US, and these tariffs could help. Zyn’s importing competitors, such as Nordic Spirit and On!, could get caught in the tariff net, depending on the location of their production facilities. If these imports become more expensive, Zyn could strengthen its already dominant position.
However, when the product is exported to Europe, different factors come into play. Any increase in costs could be directly reflected in consumer prices. In this scenario, European producers of similar products could take advantage of higher prices to boost their market share by offering cheaper or locally produced alternatives.
If the tariffs were to be reinstated or remain suspended for a long time, new political and trade negotiations between the EU and the US would likely open up to mitigate the effects on trade, especially on products like Zyn that represent a niche but growing market in Europe.
Meanwhile, from a regulatory perspective, some EU member states are moving towards more restrictive measures regarding nicotine pouches. For example, Poland is considering a ban on flavoured pouches, and its plan echoes a recent shift in France, where policy-makers initially discussed taxing nicotine pouches before deciding to move towards a total ban. So, in these adverse and fluctuating circumstances between the US and the EU, we have no choice but to wait for the moves of one and the other.
– Antonia Di Lorenzo TobaccoIntelligence staff
Radar image: OpenClipart-Vectors
