One industry expert discusses the possibilities.
A million years ago—back when 2020 began—tariffs were very much on the agenda for dietary supplement and natural products businesses. But once the novel coronavirus and its ensuing pandemic settled in to occupy our minds, lives, and businesses right up until the current day…Well, let’s just say those tariffs took a backseat to more pressing concerns.
But now that we have a slightly better perspective on what a post-pandemic world might look like—and a new administration in office cuing up its own COVID-19 and trade policies—it’s worth exploring how tariffs, and any lingering pandemic pandemonium, might shape our sector in the coming year. And it might even be worth looking for a light at the end of the tunnel that 2021 might shine.
Where Were We, Again?
Of course, we can’t look forward with any prescience unless we first look back, and though it almost requires a feat of imagination to recall it, it was just a year ago that COVID-19 began to top the list of industry worries.
In the intervening time, practically the entire world has changed. But one remnant of the pre-pandemic era remains: “Nothing got resolved on the tariff front for our industry in 2020,” declares Wilson Lau, vice president, Nuherbs Co. (San Leandro, CA).
Depressing Dollar Values
Imported herbs and herbal materials alone still incur 25% tariffs, Lau says, while herbal extracts are levied at 7.5%. And unless decision makers act “to reduce this burden” soon—Lau is hoping for change by the end of this year—depreciation in the value of the U.S. dollar will raise the effective rates of these imposts even higher.
In other words, “Although the percentage of the tariff won’t have changed,” Lau explains, “once you factor in the weakening dollar, it will cost us more dollars to buy the same product.” Such weakening has already dropped the dollar’s value by roughly 7% since the beginning of the year, Lau notes. “And so once you factor in the tariffs, you’re actually paying approximately 9% more.”
Always on Edge
Rising effective rates aside, the last administration’s apparently haphazard implementation of its tariff scheme has harmed the supplement industry, as well—principally by generating uncertainty, which is kryptonite to any business, Lau points out.
Granted, the industry has been living with those tariffs for almost two years at this point, “so although it’s continued to impact the supplement industry, at least it wasn’t entirely unexpected,” Lau goes on. “As with most business, we can deal with the known and work out ways to account for that.”
The curveballs that are harder to catch, however, are the unknown, unanticipated, or sudden changes—like the pandemic, or even the tariff’s hasty rollout. “It’s changes like that that really disrupt our planning and sow chaos in the system,” Lau says. And such chaos was rife even before COVID-19, thanks to what he describes as “the seemingly impulsive nature of the Trump administration’s changes to the tariff amounts.”
COVID’s Economic “Long-Haul” Effect
That said, Lau believes that the Trump tariffs pale in comparison to the pandemic in their sheer capacity to disrupt. Why? “All the changes the pandemic brought have had a much greater impact than the tariffs because the former amount to true disruptions, whereas the tariffs are realities that we’d already accounted for.”
What’s more, if COVID-19 trips the global economy into an enduring downward spiral—just as it’s turned some of its survivors into “long haulers”—the industry could be in for even more pain.
Or…maybe not. As Lau says, “If there’s a global economic downturn, there are two ways to look at it: It could lead to greater protective tariffs, or to a policy to roll them back so that our dollar buys more goods and we don’t feel the reduction in income as greatly.” Clearly, industry’s pitching for the latter.
Either way, Lau isn’t so sure that a new boss in the White House, or a new majority in Congress, will make much of a policy difference just yet. “I don’t think anything will change with tariffs in the short term or even in 2021 because all the Biden administration’s energy will be focused on more important issues, like how to vaccinate our great country and get things normalized,” he says.
But once those tasks are in hand and the administration begins its work in earnest, trade and tariffs deserve a space on the agenda, Lau maintains, and “we’ll know more about which way that policy will lean if there is a sustained COVID-related downturn.”
In the meantime, nutrition-sector advocates aren’t sitting on their hands. “Our industry representatives are reaching out to new and returning legislators to share with them the number of jobs we create, and the ways in which our industry positively impacts the well-being of Americans,” Lau declares, adding that “it’s essential that we clearly establish how much we bring to the table so that when tariff discussions begin, we can have a seat at them.”
When you add it all up, Lau still holds a neutral outlook on tariff and trade policy for the foreseeable future. “The positive is that this new administration will bring predictability,” he wagers. “So if tariff hikes are in the future, we’ll at least know what, when, and how they’ll be implemented. That alone brings a lot of relief, because there’s nothing worse for business than uncertainty.”