- The Washington Times - Sunday, August 5, 2018

An unexpected bystander may get caught up in the crossfire in President Trump’s trade war with China: your Juul vape pen.

Conceived as a way for addicted smokers to kick the habit, e-cigarettes and vape pens — particularly the sleek, USB-shaped Juul — have become increasingly popular with younger users across the U.S.

Unlike earlier models, Juul markets itself as small, rechargeable and easy to use. Consumers change out flavored “pods” filled with a cigarette pack’s worth of nicotine to ease their cravings. From middle schoolers to adults, the Juul’s popularity does not discriminate, generating $224 million in sales in one year.

But like many other products that are popular among Americans, vaping mechanisms are not manufactured at home. They are made in China.

If the Trump administration’s second round of 25 percent tariffs on Chinese imports takes effect, buyers may take a hit in the wallet if they want to keep taking hits on their Juuls.

Neither side is showing any signs of yielding in the larger trade war. Beijing on Friday announced plans to impose tariffs of 5 percent to 25 percent on some $60 billion of U.S. imports, including honey, coffee and industrial products. The White House on Tuesday confirmed that a second round of tariffs on $16 billion of Chinese imports was coming Aug. 23. Restrictions on Chinese investment in the U.S. are also in the works.

The Commerce Department revealed that the U.S. trade deficit and the bilateral deficit with China increased in June, which is likely to reinforce the White House’s determination to stand firm in the trade war.

China is like the OPEC of e-cigarettes, with just about all of the world’s vaping delivery systems — although not the nicotine-bearing “pods” — made in China. Officials in Shenzhen say that more than 100 companies in the province produce over 90 percent of the global e-cigarettes — including Juuls.

Trade analysts say e-cigarette devices fall under the category of “other machinery” and would be squarely in the crosshairs of the next round of Mr. Trump’s tariffs.

Arnaud Dumas de Rauly, co-founder and co-CEO of the Blinc Group, a developer and distributor of vapor technologies for cannabis and traditional vaping industries, has already seen the economic impact of the trade war in his day-to-day business.

“The products I imported two weeks ago are already costing me more than they did a month ago,” said Mr. de Rauly. “The margins on these [vape] products for businesses here in the U.S. are between 10 to 15 percent. If, on top of that, we have to pay a 25 percent extra tariff, there’s not going to be much left.”

Part of the extra cost could be passed on to the consumer, “limiting access to these therapeutic products to patients and consumers,” he said.

Vapor technology and e-cigarette industry groups testified last month against tariffs on Chinese imports in hearings held by the U.S. trade representative.

“Yes, it will hurt consumers. Yes, it will hurt the industry,” Tony Abboud, executive director of the Vapor Technology Association, a trade group representing more than 600 companies, told Bloomberg News last month. “It is a dramatic impact, especially for anybody who’s low- or middle-income.”

Taking the loss

Chris, a representative from a local vape shop called Vapor Solutions who preferred not to give his last name, said that if e-cigarette prices go up, then the store’s profit margins will be sliced.

“Yeah, we’d probably try to cover that cost,” said the representative.

Morgan Fox, spokesman for the National Cannabis Industry Association, noted another potential downside to higher vaping prices. A tariff, he said, could create a black market for several products, not just the Juul. The medical and recreational marijuana industry could also suffer.

“Any increase in the price of legal cannabis through licensed producers could have the tendency to incentivize the illicit market,” Mr. Fox said.

“When consumers are faced with extremely high legal prices for their products, there is a possibility that they will look for alternative and lower-priced options, and that creates an opportunity for illicit actors,” he said.

Though some consumers will engage in illegal activity to satisfy their cravings, others say they will quit their habits altogether.

Alexis Hynes, a rising junior at Tulane University, said that if the price of a Juul goes up, she will quit. “I’ve been looking for an excuse to quit. … I wouldn’t pay extra to keep buying more pods,” she said.

Government regulators and public health specialists are sharply debating the long-term health effects of Juul and similar products — and whether the benefits of cutting adult smoking rates outweigh the impact of creating a generation of vaping addicts. The negative health impact of cigarette smoking is widely accepted, but the effects of heavy e-cigarette use are far less certain.

Pitched originally as a way for heavy smokers to wean themselves off the habit, Juul and its rivals have found an unexpected but exploding market among young nonsmokers who become addicted to the potent nicotine rush the devices supply. Many users believe that because the Juul does not contain some of the harsh chemicals found in cigarettes, the health downsides are also relatively small.

Producers and consumers may be the obvious victims of the impending tariffs, but Mr. Fox said a number of other industries will face spinoff effects if the U.S.-China trade war is prolonged.

“Ancillary businesses” that have piggybacked on the vaping trend will be forced to scramble, he said.

“Everybody from lighting manufacturers to plumbers and general contractors to SDHC manufacturers — all of these things will be affected by the tariffs negatively,” Mr. Fox said.

BIS Research said sales of e-cigarette devices, pods and batteries hit $5.4 billion last year, up 15 percent from 2016. Convenience stores, grocery stores and vape shops are all major distributors.

While Mr. Trump has warned that manufacturing abroad takes business away from American producers, Mr. de Rauly said this is not the case for e-cigarettes.

“Don’t forget, for the entire industry, the know-how, the manpower and the raw materials are only available in China,” he said. “The entire rationale of this trade war in China … is [that China is] ‘stealing jobs from Americans.’ Well, these jobs are not in America in the first place. The know-how is not in America in the first place. So it doesn’t even fit into the rationale of the trade war against China.”

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