Collateral damage is inevitable in war. That’s as true of an active shooting conflict as it is of the more metaphorical variety—like, for example, a trade war.
And by all accounts, a trade war is precisely what we’ve found ourselves in since the Trump administration began levying tariffs of as much as 50% and more on imports from friend and foe alike.
And that’s where the collateral damage comes in. For whether intended or not, one consequence of the White House’s trade policy has been upheaval in the pricing, supply chain, hiring, and investment decisions of businesses only tangentially involved in the disputes that sparked the tariff standoff in the first place—including those in the dietary supplement industry.
But you don’t have to explain this to James C. Griffiths, PhD, senior vice president, international and scientific affairs, Council for Responsible Nutrition (CRN; Washington, DC). He witnesses every day examples of how this “highly politicized staring contest” is rattling dietary supplement brands, and their consumers.
Caught in the China Net
“Everything is happening so fast that I’ve turned to my members watching specific tariff codes and ingredients to see if anything’s changing,” Griffiths says.
And while he concedes that he’s not privy to the tariffs’ full political backstory, and understands that concerns around technology transfer and intellectual property demand action, “I do think the situation has significantly affected our industry,” he says. “And I’m sure that every affected industry can find reasons why it doesn’t deserve to be caught up in this large net.”
How large a net is it? To take just one section—albeit one that could catch a whale—the Trump administration in July 2018 began imposing tariffs of 25% on $250 billion worth of imports from China, a critical source of raw materials for industries spanning electronics to pet care to, yes, nutrition.1
And because importers—not the offending countries—pay these taxes, that raised costs for dietary supplement manufacturers whose formulations rely on Chinese inputs; but perhaps as vexing, China retaliated by laying tariffs of its own on $110 billion of U.S. exports1—exports that most surely included American dietary supplements.
This is the perfect example of a trade-war double whammy, Griffiths believes. “China is important,” he points out. “So many of the raw materials and botanicals we’ve come to rely on come from China,” which has developed a sophisticated supply chain, with vetted farmers, processors, and vendors, over the years.
Indeed, in comments it filed with the Office of the United States Trade Representative in June 2019, the American Herbal Products Association (AHPA; Silver Spring, MD) noted that among the Chinese commodities subject to the tariff are many frequent fliers in dietary supplement and herbal products: pepper, fennel, ginger, black and green tea, kola nuts, chicory root, ginseng, and more.2
CRN, in comments to the U.S. Chamber of Commerce, adds that tariffs on Chinese Ginkgo biloba alone—which grows native in the country—would raise the price that one of its member manufacturers pays for the ingredient by $1 million.1
Perhaps even more than these immediate costs, “It’s the retaliatory tariffs that scare me the most,” Griffiths says. After all, Chinese consumers have been demonstrating an increased appetite for American nutritional products—and an increased willingness to seek them out and pay for their high quality and reputation.
“So if these products are now getting a tit-for-tat retaliatory tariff,” Griffiths fears, “not only does it cost our producers more to import Chinese ingredients, but the finished products that go to China are now getting hit with a tariff that may make them more expensive than domestic products, and maybe even more than European or Australian ones. We’ll pay more dearly for raw materials, and we may lose more of those exports to China that we’ve come to depend on.”
In other words, everyone loses.
Wilson Lau, vice president of Nuherbs (San Leandro, CA), which supplies high-quality herbs sourced sustainably in China, can vouch personally that tariffs “impact our business and resources, both financially and in personnel commitments, as well as our customers’,” he says.
“It’s impacting everyone’s cost of goods, whether you’re buying ingredients or finished products,” he continues. And don’t expect size to insulate you. “These tariffs and this trade war impact everyone from big companies to small—just differently.”
Because smaller companies may not import tariffed items directly, the fallout doesn’t hit their cash flow as much as it does direct importers. “Yet they have less ability to absorb the tariff-related premium on things they buy,” Lau notes. Meanwhile, though big importers are likely better able to absorb the tariffs or a portion of them, he continues, “they pay the toll on customs clearance, which can ding cash flow and finances.”
Ultimately, everyone will feel the trade war’s impact because we operate on a global economic stage. “Some sectors that don’t even import or export directly feel it,” Lau adds, “because our system is integrated in such a way that there are indirect effects on related businesses.”
And on consumers. As in China, “Higher ingredient costs mean that finished products cost more,” Lau points out. “For some consumers, that’s not a big deal; for others, it may mean they can no longer afford the products.”
- Ridel K. “Tariffs on Chinese Imports to Drive Up Costs of Health, Wellness Supplements.” U.S. Chamber of Commerce website. Published September 4, 2019. Accessed at: https://www.uschamber.com/series/above-the-fold/tariffs-chinese-imports-drive-costs-of-health-wellness-supplements
- American Herbal Products Association comments to the Office of the United States Trade Representative on the “Proposed Modification of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.” Docket No. USTR-2019-0004. Comments submitted on June 17, 2019. Accessed at: http://www.ahpa.org/Portals/0/PDFs/Advocacy/19_0617_AHPA_Comments_USTR_China_Tariffs.pdf
- American Herbal Products Association website new page. “‘Phase One’ Agreement with China Provides Some Relief to Supplement Importers.” Published January 21, 2020. Accessed at: http://www.ahpa.org/News/LatestNews/TabId/96/ArtMID/1179/ArticleID/1273/%E2%80%9CPhase-One%E2%80%9D-agreement-with-China-provides-some-relief-to-supplement-importers.aspx