The American Herbal Products Association (AHPA; Silver Spring, MA) submitted comments on September 6 to the Office of the United States Trade Representative (USTR) requesting revision of a proposed 25% tariff on China exports that included a number of ingredients and botanicals used extensively by the dietary supplement industry.
This year’s escalating trade war between the U.S. and China peaked this summer when both countries levied billions of dollars’ worth of tariffs on each other’s goods. The Trump Administration announced on April 6 an intended 25% tariff on $50 billion worth of goods from China for the calendar year 2018. Following a comment period, on June 20, USTR ultimately narrowed that list to $34 billion worth of China goods that subsequently went into effect on July 6. USTR also requested comment for a proposal to impose tariffs on an additional $16 billion worth of China products (to total $50 billion) that subsequently went into effect on August 23. On July 6, China retaliated with tariffs of its own against the United States, and the Trump Administration followed suit proposing an additional 10% tariff on products from China totaling an estimated annual trade value of $200 billion. The public comment period for this proposal opened on July 17 and then USTR extended this comment period on August 7 after President Trump directed that this 10% duty be increased to 25%.
It is for this most recent increase that AHPA has submitted comments, arguing that many of the ingredients used by the dietary supplement industry be excluded from the proposed tariff list. Ingredients AHPA requests excluding include ginseng root, whey protein concentrates, cod liver oil, a variety of dried mushrooms, and spices such as dried onion, garlic, fennel, marjoram, and parsley. AHPA also listed products that would be used for packaging in the dietary supplement industry such as plastic bottles, flasks, and glass containers. Including these products, says AHPA, would cause severe economic harm and provides no strategic advantage in relation to China’s intellectual property policies or the country’s “Made in China 2025” initiative, for which the Trump Administration claims these tariffs were designed to combat.
AHPA’s comments also focus on the economic impact such tariffs would impose on the dietary supplement industry at large. In its comments, AHPA first notes the significant economic value that the dietary supplement industry contributes to the U.S. economy, cautioning that hurting the industry’s bottom line via these tariffs will ultimately hurt the country’s economy.
According to data from the Council for Responsible Nutrition quoted by AHPA, the dietary supplement industry contributed approximately $121.59 billion in U.S. total economic output in 2016, roughly 0.68% of the United States gross domestic products. Based on this same 2016 number, the dietary supplement industry also directly employed 383,230 Americans, amounting to over $16 billion in wages and benefits. Indirect and induced impacts to the economy include 754,645 jobs and $38.36 billion in wages, and total federal, state, and local wage and business-related taxes of $14.94 billion.
Small businesses, which the dietary supplement industry is overwhelmingly made up of, will be the most affected by the tariffs, says AHPA. The trade group projects that by 2019, there will be approximately 1,649 small U.S. dietary supplement manufacturers, packagers, labelers, or distributors; 120 small suppliers; and 19,558 small dietary supplements distributors that warehouse, wholesale, and hold dietary supplements but are not otherwise involved in the industry.
AHPA reports that estimates from its member companies of the resulting cost of the proposed tariffs range from several hundred thousand dollars to as much as $2.4 million in increased annual costs. While actual costs are difficult to determine accurately, because a majority of supplement companies are privately held, writes AHPA, “It is reasonable to assume, however, that the cumulative increased costs for Chinese-source ingredients that would be borne by U.S. manufacturers and marketers of these products would be tens of millions of dollars annually.”
Part of the problem is that manufacturers can’t simply replace ingredients in their supply chain with non-China-sourced ingredients without incurring significant time and resource costs. Countries outside of China may not have the volume of product needed, nor may their meet the company’s standards. Some ingredients may not have an alternative supply chain at all. AHPA provides eleuthero (Eleutherococcus senticosus) as an example of an ingredient that suppliers in most countries have discontinued producing because of significant price drops, leaving the bulk of production only to China. While other countries may be enticed to rejoin the eleuthero marketplace, it will take years to grow sufficient crops to harvest, AHPA says.
Asking customers to absorb these cost increases is also risky, says AHPA, as companies face the possibility that increased ingredient costs will increase retail costs, and lower profit margins. “If companies facing an additional 25% ad valorem duty on key ingredients increase their retail pricing commensurately at the same 25% rate, they run the risk of losing sales and customers, which could lead to job loss, or reduced business growth, or even worse outcomes such as outright business closures,” writes AHPA.
Shifting costs to consumers doesn’t just hurt the businesses selling the products, but the consumers who rely on these products, the trade group argues. “Analyses have also been conducted on various American subpopulations, and reports have found supplement use by 33% of children and adolescents, 66% of college students, and 70% in Americans over 60 years of age,” says AHPA. This would not only affect their wallets, but also reduce the choices they have in products.
AHPA contends that given the potential harm of the proposed tariffs to these businesses and therefore the economy, including these products on the tariff list is inconsistent with USTR’s own inclusion criteria that was supposed to prioritize minimizing the negative impact on the U.S. economy and on U.S. consumers. AHPA is not the first trade group to submit comment to USTR. Previously, the Natural Products Association (NPA; Washington, D.C.) sent a letter to USTR on July 30, and Daniel Fabricant, PhD, president and CEO of NPA, testified before USTR on August 20.