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The only predictable thing about an administration under president Donald Trump is its unpredictability.
After the denial from the White House a few days ago regarding the possible suspension of tariffs, yesterday, 9th April, the confirmation came that Trump had authorised a 90-day pause for most of the countries they had been issued to and a lowered reciprocal tariff of 10% during this period. The exception is China, which has had tariffs of 125% imposed on goods the US imports from there, with immediate effect, “based on the lack of respect that China has shown to the world’s markets”. Including the pre-existing 55%, that brings the total tariffs imposed on Chinese vaping products to 180%.
This came after Beijing replied to Washington with an increase on imported US goods from 34% to 84%. The latest round of “reciprocal” and “kind” tariffs announced last week against nearly every country on the planet – with a few notable exceptions, including Russia and North Korea – put the price of imported Chinese products up to around 89%, with those in effect from 2nd April adding a further 34% onto what was calculated to be an existing 55% tariff applied to vaping products. It also means the price has increased more than 50% in the last couple of months alone.
The wave of tariffs could trigger new dynamics in the tobacco alternatives industry, with companies potentially opting for new supply routes that could take over in the long term. With a focus on reducing trade deficits, countries with larger trade imbalances were more likely to be targeted for higher tariffs. In addition to China, the US has also hit hard against Southeast Asia, where the highest tariffs have been applied, and which acts as a shadow market for China, risking throwing the entire region into the arms of Beijing.
ASEAN countries affected more than most
During the announcement last week, six of the ten member states of the Association of Southeast Asian Nations (ASEAN) were heavily affected by tariff levels, with 32% imposed on Indonesia, 37% on Thailand, 45% on Myanmar, 46% on Vietnam, 48% on Laos, and the highest of the group at 49% on Cambodia. Of course, many of these tariffs have now been suspended. However, there is no guarantee that those on other Southeast Asian countries will have disappeared permanently. So there is uncertainty on how a future might play out with very high tariffs on China and lower but still relatively high tariffs on other nations in the region.
Among ASEAN countries, the Philippines was not heavily targeted, as predicted by that country’s Department of Trade and Industry undersecretary Ceferino Rodolfo before Trump took office in January, due to its balanced trade relationship with the US. In 2023, the Philippines registered a trade deficit with the US ($4bn) that was considerably smaller than those the US holds with other Asian countries, including China ($300bn) and Vietnam ($109bn). Also, the country’s efforts to maintain a mutually beneficial trade relationship with the US have contributed to its relatively favourable position.
As the Philippines faces lighter tariffs under Trump’s new trade plan, especially compared to the likes of China and Vietnam, the vaping and nicotine pouch industries could see a sharp turnaround, making the country a more attractive option for companies looking to relocate or redirect their production and their exports to the US.
Made in the US, Zyn could be worry-free
While disposable e-cigarettes are the most exposed products due to their reliance on Chinese factories, refillable devices and nicotine pouches offer more flexibility. However, components such as coils and pods could still be affected, depending on where they come from.
As for nicotine pouches, Zyn has less to worry about because its pouches are produced in the US, and these tariffs could help them. Its imported competitors, such as Nordic Spirit or On!, could get caught in the tariff net, depending on where their production facilities are located. If such imports become more expensive, Zyn could strengthen its already dominant position.
On the other hand, if some components (such as synthetic nicotine or flavourings) come from countries subject to tariffs, Zyn could also come under some pressure in the market. In the US, many of these products are already under scrutiny from the US Food and Drug Administration and now are facing tariff pressure. So smaller brands could struggle, consolidate, or even exit the market.
However, the tariffs Trump initially imposed are the result of a miscalculation, as he did not calculate the duties the US faces by adding them to other types of trade barriers as written in the documents distributed, but for each country in the world, he took the US trade deficit with that country and divided it by the exports of that country to the US.
This also explained the lower tariffs applied to the Philippines compared to other Southeast Asian countries. An example is Indonesia, with which the US has a trade deficit of $17.9bn, while Indonesian exports to the US amount to $28bn. By dividing the trade deficit by the exports, the result is 0.64, or 64%, which is the percentage that Trump presented as the customs tariff that Indonesia applies to the US. But this is incorrect because it was made with a calculation using two figures that have nothing to do with duties.
Could tariffs be bad for public health?
With the introduction of tariffs, Indonesia’s position in the vaping sector is made more complicated. Until recently, it was seen as an attractive potential manufacturing hub due to its cheap labour and a rapidly expanding domestic market. However, structural problems already flagged in 2022 – such as a poorly skilled workforce and a lack of local machinery – now weigh even more heavily.
The fact that production machinery must be imported from China means that companies looking to produce in Indonesia face a double hurdle: tariffs on imports of machinery from China and tariffs on exports of finished products to the US. In this scenario, Indonesia risks losing momentum just as it was starting to generate interest in the sector. This, in turn, could work to the advantage of the Philippines, which, while not having a great manufacturing history behind it, with less severe tariffs than other countries, could become a more attractive choice for companies looking to keep costs low and access the US market.
So, while Trump has officially started a trade war and called it “liberation day”, these new measures – resulting from a bizarre calculation – could weaken the development of some markets to the advantage of others and have detrimental public health consequences if they bring more unscrupulous producers into play. Chinese manufacturers cannot absorb the latest increase, as US markets are already heavily competitive with oversupply in some markets and previous price increases taking up any spare margin that had been available in the price.
The negative effects on public health could manifest themselves more indirectly, with the risk of incentivising the illicit market (already widespread in the US), undermining trust in public authorities, and increasing risks associated with contaminants in the products, such as heavy metals, due to the spread of less regulated manufacturers.
– Antonia Di Lorenzo TobaccoIntelligence staff
Image: AI-generated
